Mortgage Payments Research Articles

Implicit Hedonic Pricing Using Mortgage Payment Information

Hedonic pricing, estimating the value of housing characteristics through the use of transactions data, is one of the most common tasks performed by real estate researchers. However, transaction frequency varies over time, locations, and other factors. In contrast, two-thirds of homeowners have mortgages that they pay each month. This manuscript explores the use of mortgage payment data as an alternative or supplemental means to derive the value of housing characteristics. Insofar as price affects default and housing characteristic values determine price, housing characteristic values affect default. The implicit housing characteristic values come from parameter values that fit observed patterns of payments and defaults. We find a strong correlation (0.74−0.92) between the transaction-based and the implicit approaches. In addition, the Monte Carlo simulation indicates that the mortgage based pricing model has potential to help reveal housing market information especially during low sales activity and/or high default rate situations.

“We’re just existing, not living!” Mortgage stress and the concealed costs of coping with crisis

Following the financial crisis, an extensive literature has examined the vulnerabilities facing mortgagors in default and foreclosure. However, in addition to these “overt casualties” of the crash, many households are struggling to meet their mortgage payments by enduring severe cutbacks to their quality of life. The experiences of these “unrevealed casualties” of the financial crisis and the coping strategies they employ to respond to mortgage stress remain under-explored. Drawing on survey data of Irish mortgagors (n = 433), this paper examines the impacts of mortgage stress upon quality of life and mortgagors’ coping strategies to respond to their financial difficulties. The findings suggest that mortgage stress affects a broader range of households than previously considered; mortgage stressed households adopt a range of expenditure, employment, finance and housing-related responses; and more punitive responses correlate with greater mortgage stress levels, thereby providing a fuller account of the real cost of coping with the crisis impacts.

Debt trajectories and mental health

In the last few decades, there was a marked increase in consumer debt in the United States, Latin America and other emerging countries, spurring a debate about the real costs and benefits of household credit. Using a unique longitudinal dataset with detailed health and balance sheet information from a large sample of 10,900 Chilean households we study the relationship between debt trajectories in a three-year time window and mental health. We find that depressive symptoms are higher for those who have been persistently over-indebted, followed by those who transit from moderate to high debt levels. We also find that those who transition from over-indebtedness to moderate debt levels have no additional depressive symptoms compared to those with trajectories of moderate debt throughout (never over-indebted). This suggests that the debt-related contribution to depressive symptoms vanishes as debt levels fall. The association between debt and depressive symptoms seems to be driven by non-mortgage debt -primarily consumer credit- or late mortgage payments; secured debt (secured by collateral) per se is not associated with depressive symptoms. Policy interventions to reduce the negative association of over-indebtedness on mental health are discussed.

The impact of missed payments and foreclosures on credit scores

Abstract This paper debunks the common perception that “foreclosure will ruin your credit score.” Using individual-level data from a credit bureau matched with loan-level mortgage data, it is estimated that the very first missed mortgage payment leads to the biggest reduction in credit scores. The effects of subsequent loan impairments are increasingly muted. Post-delinquency foreclosures have only a minimal effect on credit scores. Moreover, credit scores improve substantially a year after borrowers experience 90-day delinquency or foreclosure. The data supports one possible explanation of this improvement: the absence of mortgage payments relaxes the borrowers’ budget constraint, allowing them to restore other forms of credit.

Mortgage debt and household vulnerability

PurposeThis paper aims to study the financial vulnerability of the Spanish households derived from their primary residence mortgage debt payments. This paper shown as the economic and financial crisis triggered after the burst of the housing bubble brought an unemployment shock and a fall in the disposable family income, which alarmingly aggravated the financial vulnerability of the mortgaged households. Consequently, the number of financially vulnerable households almost doubled.Design/methodology/approachEconometric model of discrete election.FindingsThe most vulnerable households – and therefore those with a higher risk of mortgage payment default – are those whose family head is a married and self-employed female. In contrast, in social housing the mortgaged households have been less vulnerable in the context of economic and financial crisis and unlike what would have been initially expected, higher education levels have not acted as a protective factor against households’ financial vulnerability.Originality/valueThere is a great need to understand how the financial health of the mortgaged families that bought their primary residence has deteriorated in a context of significant changes in macroeconomic conditions. This need is specially pressing in a country such as Spain which is one of the OECD’s countries with a higher rate of household property and which shows a sector of highly mortgaged households.

The price, quality and distribution of mortgage payment protection insurance: A hedonic pricing approach

Mortgage payment protection insurance (hereafter MPPI) provides varying combinations of accident, sickness and unemployment insurance and is used to protect the mortgage payments of policyholders in the event of a fall in income. Despite alleviating housing market failures, this service has been heavily criticised for providing poor value for money and being associated with unhelpful sales techniques especially when sold jointly with a mortgage in the UK. Consequently, the Competition Commission (2009) ruled that after February 2011 MPPI should not be sold jointly with mortgage lending within seven days of the credit transaction. We examine whether this prohibition was justified and if the form of distribution, either jointly with the mortgage or independently influences the premium levels. This assessment uses a hedonic pricing approach with details and premiums of MPPI policies in 2010 and 2012. Despite the success in reducing MPPI premium levels, we conclude that the Competition Commission judgement has raised concerns as to mortgagee protection.

Foreclosure Delay and Consumer Credit Performance

The deep housing market recession from 2008 through 2010 was characterized by a steep rise in number of foreclosures. The average length of time from onset of delinquency through the end of the foreclosure process also expanded dramatically. Although most individuals undergoing foreclosure were experiencing serious financial stress, the extended foreclosure timelines enabled them to live in their homes without making mortgage payments until the end of the foreclosure process, thus providing temporary income and liquidity benefits from lower housing costs. This paper investigates the impact of extended foreclosure timelines on borrower performance with credit card debt. Our results indicate that a longer period of nonpayment of mortgage expenses results in higher cure rates on delinquent credit cards and reduced credit card balances. Thus, foreclosure process delays may have mitigated the impact of the economic downturn on credit card default—suggesting that improvement in credit card performance during the post-crisis period would likely be slowed by the removal of the temporary liquidity benefits as foreclosures reach completion.

Ethnically bounded homeownership: qualitative insights on Los Angeles immigrant homeowners’ experiences during the U.S. Great Recession

Immigrant homeowners’ function within ethnic boundaries in the housing market may have helped or hindered them during the recent U.S. Great Recession. This research explores this theme through interviews with immigrant and non-immigrant homeowners from four ethnic communities in Los Angeles County and the non-profit organizations that tried to assist them. Immigrant homeowners turned to co-ethnics for advice and support and formed multigenerational households as a strategy to achieve and sustain homeownership. Language and cultural barriers primed them for risky loans and thwarted their pursuit of refinance and modification when they struggled to make mortgage payments. These findings conform to existing evidence of ethnic segmentation in the housing market and imply that analyses of home buying and homeownership in areas with significant immigrant populations should factor in the role of ethnicity.

Mortgage credit and bankruptcy chapter choice: a case of US counties

Purpose– A financially distressed homeowner considers bankruptcy filing, either Chapter 7 or Chapter 13, to delay foreclosure. On one hand, Chapter 13 filing takes longer processing time, spreads mortgage arrearages over the debt repayment period, and increases the possibility of loan modification. On the other hand, Chapter 7 filing discharges unsecured debt, which provides additional disposable income for mortgage payments. The paper aims to discuss these issues.Design/methodology/approach– The author uses fixed-effects (within variation), random-effects, and generalized estimation equation models with time dummies on the panel data of US counties.Findings– The results show that mortgage delinquency increases Chapter 7 filings, while it has positive but statistically insignificant effect on Chapter 13 filings. In addition, a county’s mortgage debt to income and proportion of mortgage borrowers increase its Chapter 7 filings.Originality/value– The contribution of the paper is to assess the effect of mortgage credit on the bankruptcy chapter choice using the county-level data.

For Better and for Worse? Effects of Access to High-Cost Consumer Credit

I provide empirical evidence that the effect of high-cost credit access on household material well-being depends on if a household is experiencing temporary financial distress. Using detailed data on household consumption and location, as well as geographic variation in access to high cost payday loans over time, I find that payday credit access improves wellbeing for households in distress by helping them smooth consumption. In periods of temporary financial distress—after extreme weather events like hurricanes and blizzards—I find that payday loan access mitigates declines in spending on food, mortgage payments, and home repairs. In an average period, however, I find that access to payday credit reduces well-being. Loan access reduces spending on nondurable goods overall and reduces housing- and food-related spending particularly. These results highlight the state dependent nature of the effects of high-cost credit as well as the consumption-smoothing role that it plays for households with limited access to other forms of credit.

Mortgage risks, debt literacy and financial advice

A limited understanding of mortgage contracts and the risks involved may have contributed to the outbreak of the 2007–2008 financial crisis. We developed a special questionnaire relating mortgage loan decisions to financial knowledge and financial advice. Our results demonstrate that homeowners appear to be well aware of mortgage risks. Large loans relative to home value are perceived as riskier, as are loans with large mortgage payments relative to income and loans linked to investment vehicles. Homeowners with riskier mortgages indicated that they could encounter financial problems should house prices or their income decline. Homeowners with relatively low debt literacy are more likely to take out traditional mortgages with principal repayments over the maturity of the loan. Riskier mortgages are more prevalent among homeowners with a better understanding of loan contracts. Financially less sophisticated homeowners consulting mortgage brokers, too, hold riskier mortgages.

To green or not to green: Establishing the economic value of green infrastructure investments in The Wicker, Sheffield

Establishing the value of urban green infrastructure resources draws on a complex evaluation of social, economic and ecological influences. As a result planners have found it difficult to develop robust economic arguments to promote investments in urban greening. The Valuing Attractive Landscapes in the Urban Economy (VALUE) project facilitated a trans-national programme of investigations to establish economic values for a range of green infrastructure investments. This paper presents the results of a large-scale willingness to pay (WTP) survey (N: 510) for investments on Blonk Street, The Wicker, Sheffield. Using 3D visualisations of three alternative urban greening scenarios the research addressed the influence of green infrastructure on aesthetic quality, functionality and amenity. The evidence suggests that participants were WTP up to £10.56 or 2% more in monthly rent or additional mortgage payments to live in locations that have a high quality green infrastructure environment. The survey also examined the relationships between a range of socio-economic factors and WTP for green infrastructure (GI). WTP more rent was associated particularly with those in younger age groups and those with lower educational attainment. The paper concludes that investment in urban GI that is visibly greener, that facilitates access to GI and other amenities, and that is perceived to promote multiple functions and benefits on a single site (i.e. multi-functionality) generate higher WTP values. The findings of the study support the wider literature evaluating the economic value of GI which argues that investment in urban greenspace can have a significant impact on local housing and commercial markets where it produces more attractive and functional landscapes.

The Effect of Negative Equity on Mortgage Default: Evidence From HAMP’s Principal Reduction Alternative

The Home Affordable Modification Program’s (HAMP’s) Principal Reduction Alternative (PRA) is a government-sponsored program to reduce the principal balances and monthly mortgage payments of troubled borrowers. We examine the effect of principal forgiveness on borrowers’ subsequent mortgage default. The program’s rules imply a kink in the relationship between principal forgiveness and a borrower’s initial equity level. Our identification strategy exploits the quasi-experimental variation in principal forgiveness generated by this kink using a regression kink design (RKD), which compares the relationship between initial equity and default on either side of the kink. We estimate that HAMP PRA reduced the quarterly default hazard from $3.8\%$ to $3.1\%$.Received February 4, 2015; accepted August 2, 2015 by Editor Philip Strahan.

“Fair go” for all? Wealth and Risk Aversion of Australian Households*

A mean‐variance framework is applied to Australian household financial portfolios in order to provide estimates of relative risk aversion in the economy. Controlling for various socio‐economic characteristics, we explore whether risk aversion heterogeneity is a function of wealth heterogeneity. In contrast to most studies, we find evidence of very high risk aversion amongst the majority of households of poor households but vastly lower risk aversion amongst the high percentiles in the wealth distribution. Applying a first differences model across three survey waves spanning 2002 to 2010, we find that risk tolerance increases significantly with wealth. Risk tolerance is positively associated with mortgage payments, but rental payments have no relationship. In addition, we found no evidence that holding a university education has any discernible impact on risk aversion. Lastly, we present some preliminary findings as to the impact of financial advice on observed risk aversion. Financial advice is found to accentuating risk aversion, particularly amongst the wealthiest households. The findings have potential implications for the distribution of wealth in Australia that has received renewed interest recently.

Stock Market Participation: Family Responses to Housing Consumption Commitments

As of 2007, many households had taken on very substantial commitments to housing and companion mortgage payments. At the same time they held little in the way of a traditional buffer stock of safer liquid assets but were more likely to have opened stock market accounts. Many of these families when experiencing subsequent mortgage payment difficulties are shown to have been more likely to exit the stock market. Mortgage difficulties also inhibited families from becoming new stock market participants. In this way stocks seem to have likely experienced some direct and indirect “collateral damage” from the housing market, 2007–9.

Local Labor Market Shocks and Residential Mortgage Payments: Evidence from Shale Oil and Gas Booms

Understanding how changes to local labor market conditions impact household spending and savings decisions is a central topic in labor economics. Frequently, housing is the largest item on a household's balance sheet, and therefore making monthly mortgage payments is often both the largest regular expenditure as well as a primary savings vehicle for households. To investigate the dynamics of this relationship, we examine mortgage payment choices of homeowners who purchased property in areas that later experienced a positive shock to local economic conditions via the shale oil and gas boom. Using a large loan-level dataset with detailed information about mortgage originations and monthly payments, we find that borrowers with properties located in areas with shale oil and gas booms experienced a 6% reduction in the probability of missing a mortgage payment.

Monetary Policy When Households Have Debt: New Evidence on the Transmission Mechanism

In response to an interest rate change, mortgagors in the United Kingdom and United States adjust their spending significantly (especially on durable goods) but outright home-owners do not. While the dollar change in mortgage payments is nearly three times larger in the United Kingdom than in the United States, these magnitudes are much smaller than the overall change in expenditure. In contrast, the income change is sizable and similar across both household groups and countries. Consistent with the predictions of a simple heterogeneous agents model with credit-constrained households and multi-period fixed-rate debt contracts, our evidence suggests that the general equilibrium effect of monetary policy on income is quantitatively more important than the direct effect on cash flows.

주택담보대출 상환방식 선택에 따른 차입자 특성분석

주택담보대출 상환방식 선택에 따른 차입자 특성분석

Payment changes and default risk: The impact of refinancing on expected credit losses

This paper analyzes how access to credit and the path of mortgage rates can affect borrower credit risk. This is a crucial issue for evaluating refinance programs as a form of loss mitigation, and it became prominent in the debates around the Treasury Department's Home Affordable Refinance Program (HARP). These debates exposed gaps in the literature on the relationship between credit performance and changes in borrowers’ monthly mortgage payments. Since then, several new studies have attempted to fill these holes, each pursing a different methodology. In this paper, we review the relevant debates and look at what downward adjustments in prime adjustable-rate mortgages can tell us about modifications of prime fixed-rate mortgages. We argue that this method better addresses the various sampling biases that plague all attempts to predict HARP's impact. Our analysis indicates that typical monthly payment reductions under HARP would reduce credit losses by 56 basis points.

Aging in Place: Analyzing the Use of Reverse Mortgages to Preserve Independent Living Summary Report of Survey Results

Equity in a home can serve as an important source of supplemental income in retirement. Reverse mortgages allow seniors to draw down equity without selling their home, and without a monthly mortgage payment. The most widely used reverse mortgage product is offered by Federal Housing Administration’s Home Equity Conversion Mortgage (HECM) program.The Aging in Place study is a multi-phase research project being conducted by researchers at The Ohio State University, in partnership with the certified reverse mortgage counseling agency, ClearPoint Credit Counseling Solutions, with funding from The MacArthur Foundation and The U.S. Department of Housing and Urban Development (HUD). Before obtaining a HECM loan, prospective borrowers are required to complete counseling with a certified counseling agency. The study combines administrative data from households who have been counseled for reverse mortgages, HUD loan data for households who borrowed HECM loans, and survey data collected on households three to nine years after receiving counseling for a reverse mortgage. The goal of the study is to provide a better understanding of the relationships between borrowing through a reverse mortgage and financial security, well-being and independence in older age. This report summarizes the results of the Aging in Place study’s survey of counseled households, administered in phases from January, 2014 through July, 2015. The sample population includes seniors who had been counseled for a reverse mortgage by ClearPoint Credit Counseling Solutions from 2006 to 2011, including (1) those who decided not to take out a reverse mortgage; (2) those who took out a reverse mortgage and retained it as of the survey date; (3) and those who took out and then terminated their reverse mortgage as of the survey date. The survey asks people about their experiences with reverse mortgages, as well as general questions on household financial well-being, living conditions and personal health.