Wednesday, December 15, 2010

Mortgage Defaults and Car Ownership...

This recent research paper makes the interesting assertion that car ownership and mortgage defaults may have a correlation.  That is, the more cars you own, the more likely you are to default.  Or, the more you walk, the less likely you are to default. 

Since owning and operating a motor vehicle is so expensive (payments, insurance, gas, repairs), this isn't all that surprising.  Still, it's interesting to see under this methodology.

Here's the abstract:

Using a sample of over 40,000 mortgages in Chicago, Jacksonville, and
San Francisco, we model the probability of mortgage default based on
differences in location efficiency. We used two proxy variables for
location efficiency: 1) vehicles per household scaled by income and 2)
Walk Score. We find that default probability increases with the number
of vehicles owned after controlling for income. Further, we find that
default probability decreases with higher Walk Scores in high income
areas but increases with higher Walk Scores in low income areas. These
results suggest that some degree of greater mortgage underwriting
flexibility could be provided to assist households with the purchase of
location efficient homes, without increasing mortgage default. They also
support the notion that government policies around land use, zoning,
infrastructure, and transportation could have significant impacts on
mortgage default rates.

Chad Emerson, Faulkner.

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