Forced moves and home maintenance: The amplifying effects of mortgage payment burden on underwater homeowners

• Main Authors: HARDING, John, JING, Li, ROSENTHAL, Stuart, ZHANG, Xirui
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2022
• Subjects: Payment burden; Mobility; Maintenance; Mortgage Default; Behavioral Economics; Economics; Real Estate
• Online Access: https://ink.library.smu.edu.sg/soe_research/2542; https://ink.library.smu.edu.sg/context/soe_research/article/3541/viewcontent/Mortgage.pdf
• Institution: Singapore Management University

Although the adverse effect of high loan to value ratios (LTV) on mortgage default is known, the potential amplifying effect of high payment-to-income (PTI) ratios that can force families out of their homes has received limited attention. High PTI and LTV can also add to default costs by discouraging home maintenance. Using the 1985-2013 AHS panel, we show that high PTI prompts families to move and especially so for households with LTV above 120%. This lends support for policies like HAMP and HARP that seek to reduce forced moves and mortgage default by lowering mortgage payment burden for financially stressed families. High PTI also reduces home maintenance but in this case amplification effects differ: it is low PTI that amplifies adverse effects of high LTV as underwater families divert discretionary spending away from maintenance.