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Determinants of Mortgage Default and Consumer Credit Use: The Effects of Foreclosure Laws and Foreclosure Delays
Author(s) -
CHAN SEWIN,
HAUGHWOUT ANDREW,
HAYASHI ANDREW,
VAN DER KLAAUW WILBERT
Publication year - 2016
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12304
Subject(s) - home equity , default , foreclosure , synthetic cdo , debt , business , mortgage underwriting , financial system , credit card , credit history , shared appreciation mortgage , equity (law) , credit default swap index , itraxx , credit reference , credit derivative , installment credit , mortgage insurance , credit card interest , credit risk , finance , credit enhancement , credit valuation adjustment , payment , law , casualty insurance , insurance policy , political science
The mortgage default decision is part of a complex household credit management problem. We examine how factors affecting mortgage default spill over to other credit markets. As home equity turns negative, homeowners default on mortgages and home equity lines of credit at higher rates, whereas they prioritize repaying credit cards and auto loans. Larger unused credit card limits intensify the preservation of credit cards over housing debt. Although mortgage nonrecourse statutes increase default on all types of housing debt, they reduce credit card defaults. Foreclosure delays increase default rates for housing and nonhousing debts. Our analysis highlights the interconnectedness of debt repayment decisions.