Can't Pay orWon't Pay? Unemployment, Negative Equity, and Strategic Default

Kristopher Gerardi, Kyle F Herkenhoff, Lee E. Ohanian, Paul S. Willen

Research output: Contribution to journalArticlepeer-review

93 Scopus citations


This paper uses new data from the PSID to quantify the relative importance of negative equity versus ability to pay, in driving mortgage defaults between 2009 and 2013. These data allow us to construct household budgets sets that provide better measures of ability to pay. Changes in ability to pay have large estimated effects. Job loss has an equivalent effect on the propensity to default as a 35% decline in equity. Strategic motives are also found to be quantitatively important, as we estimate more than 38% of households in default could make their mortgage payments without reducing consumption.

Original languageEnglish (US)
Pages (from-to)1098-1131
Number of pages34
JournalReview of Financial Studies
Issue number3
StatePublished - Mar 1 2018

Bibliographical note

Publisher Copyright:
© The Author 2017.


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