Negative Equity and Foreclosure¶
Foote, C. L., Gerardi, K., & Willen, P. S. (2008). Negative Equity and Foreclosure: Theory and Evidence. Journal of Urban Economics, 64(2), 234-245.
Cited by¶
1 citation across 1 artifact.
Each citation links to the sentence it supports in the citing article.
Primes¶
- Caldera Collapse
- Equity withdrawal: a homeowner draws down the equity buffer that supports the asset; the asset is intact, but a modest price decline triggers default because the support was already gone.
This sourceShows that exhausted equity buffers convert modest price declines into default on an otherwise intact asset.
Supported in partVerified against the work's full text
The paper shows negative equity is necessary but not sufficient for default; a cash-flow problem is also required, so exhausted equity alone does not trigger default.
“A foreclosure requires both negative equity and a household- level cash-flow problem that makes the monthly mortgage paym ent unaffordable to the borrower.”
- Equity withdrawal: a homeowner draws down the equity buffer that supports the asset; the asset is intact, but a modest price decline triggers default because the support was already gone.
Verification¶
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