![]() Linking bank accounts and mortgages-in this case, of 3.2 million Chase customers-was key to demonstrating actual income losses. What Ganong and Noel did differently was to examine mortgage-servicing records and related checking-account data. That’s a huge departure from these earlier studies, probably because of data limitations and measurement error, the researchers suggest. But Ganong and Noel find that only 6 percent of underwater defaults were caused strictly by negative equity. Previous estimates attributed 30–70 percent of foreclosures during the Great Recession to strategic default because of negative home equity. The third theory is a double-trigger default, a combination of the two. Then there’s strategic default, which is a function of the house’s value, not the borrower’s financial situation. There’s cash-flow default, triggered by a life event such as the homeowner losing a job and no longer being able to afford the monthly payment. This suggests cash flow plays a far bigger role in people losing their homes than previously thought.Įconomists have three main theories as to why people default on home loans. By their calculations, 94 percent of the defaults can be explained by negative life events. That’s according to research by University of Chicago Harris School of Public Policy’s Peter Ganong and Chicago Booth’s Pascal Noel. ![]() But while some people walked away from their loans because of negative equity, the vast majority of US homeowners who defaulted between 20 encountered cash-flow issues due to life events-such as job loss, divorce, injury, or illness. Share of Millennial home buyers in selected cities U.S.Foreclosures soared during the Great Recession as a pronounced boom-bust housing market left many homeowners underwater.Value of 90+ delinquent HELOC balances in the U.S.Home mortgage loan numbers in Spain 2005-2021.Leading buy-to-let mortgage lenders in the UK 2021, by gross lending.Italian households facing issues to pay mortgages due to COVID-19 2020.Number of housing loans in the United Kingdom (UK) 2015-2017, by purpose.Monthly interest rate for new mortgages Belgium rate fixation 1 to 5 years 2019-2022.Mortgage delinquency rates for VA loans in the U.S.Mortgage delinquency rate for subprime conventional loans in the U.S.Mortgage delinquency rate for prime conventional loans in the U.S.mortgage delinquency rates for FHA loans 2000-2021 Share of payments late or unrecoverable in Western Europe 2016-2017Īverage B2C payment term days in Western Europe 2018 Repossessions of mortgages in England and Wales Q1 2010-Q3 2022, by mortgage typeī2C vs B2B payment practices in the United Kingdom (UK) 2017 Intention to take out a home loan in the next twelve months Australia 2018 Share of Millennial home buyers in selected cities U.S. Value of 90+ delinquent HELOC balances in the U.S. Home mortgage loan numbers in Spain 2005-2021 Leading buy-to-let mortgage lenders in the UK 2021, by gross lending Italian households facing issues to pay mortgages due to COVID-19 2020 Number of housing loans in the United Kingdom (UK) 2015-2017, by purpose Monthly interest rate for new mortgages Belgium rate fixation 1 to 5 years 2019-2022 Mortgage delinquency rates for VA loans in the U.S. Mortgage delinquency rate for subprime conventional loans in the U.S. Mortgage delinquency rate for prime conventional loans in the U.S. These higher delinquency rates translate into higher foreclosure rates, which peaked at just under 15 percent of all subprime mortgages in 2011. ![]() Defaulting on such loans was one of the triggers for the 2007-2010 financial crisis, with subprime delinquency rates reaching almost 26 percent around this time. ‘Subprime’ loans, being targeted at high-risk borrowers and generally coupled with higher interest rates to compensate for the risk, have far higher delinquency rates than conventional loans. Many borrowers are eventually able to service their loan though, with foreclosure rates at below one percent since 2018. where payment is overdue by 30 days or more. The mortgage delinquency rate is the share of the total number of mortgaged home loans in the U.S. Following the drastic increase directly after the outbreak of the pandemic, delinquency rates started gradually declining and reached 3.5 percent in the first quarter of 2023. Under the effects of the coronavirus crisis, the mortgage delinquency rate in the United States spiked to 8.22 percent in the second quarter of 2020, just one percent down from its peak of 9.3 percent during the subprime mortgage crisis of 2007-2010.
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