Mortgage Default and Prepayment Risks among Moderate‐ and Low‐Income Households |
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| Authors: | Roberto G Quercia Anthony Pennington‐Cross Chao Yue Tian |
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| Institution: | 1. Department of City and Regional Planning and Center for Community Capital, University of North Carolina at Chapel Hill, Chapel Hill, NC 27599 or quercia@email.unc.edu.;2. Department of Finance, Marquette University, Milwaukee, WI 53201 or anthony.pennington‐cross@marquette.edu.;3. Center for Community Capital, University of North Carolina at Chapel Hill, Chapel Hill, NC 27599 or tianc@email.unc.edu. |
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| Abstract: | Using a unique sample of community reinvestment loans, we study the propensity of very low‐income households to terminate a mortgage and compare it to the outcomes for low‐income and moderate‐income households. The results indicate that, even within moderate‐ and low‐income segments, lower or very low income is associated with higher default and lower prepayment probabilities. In addition, depending on how low the borrower's income is, classic determinants of loan termination such as credit scores, the amount of equity in the home and local labor market conditions can have different impacts on default and prepayment probabilities. |
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