Wednesday, December 30, 2009

Illness and Foreclosure (h/t Vanessa Perry)

Christopher T. Robertson , Richard Egelhof, and Michael Hoke have a paper:

In recent years, there has been national alarm about the rising rate of home foreclosures, which now strike one in every 92 households in America and which contribute to even broader macroeconomic effects. The "standard account" of home foreclosure attributes this spike to loose lending practices, irresponsible borrowers, a flat real estate market, and rising interest rates. Based on our study of homeowners going through foreclosures in four states, we find that the standard account fails to represent the facts and thus makes a poor guide for policy. In contrast, we find that half of all foreclosures have medical causes, and we estimate that medical crises put 1.5 million Americans in jeopardy of losing their homes last year.

Half of all respondents (49%) indicated that their foreclosure was caused in part by a medical problem, including illness or injuries (32%), unmanageable medical bills (23%), lost work due to a medical problem (27%), or caring for sick family members (14%). We also examined objective indicia of medical disruptions in the previous two years, including those respondents paying more than $2,000 of medical bills out of pocket (37%), those losing two or more weeks of work because of injury or illness (30%), those currently disabled and unable to work (8%), and those who used their home equity to pay medical bills (13%). Altogether, seven in ten respondents (69%) reported at least one of these factors.

If these findings can be replicated in more comprehensive studies, they will suggest critical policy reforms. We lay out one approach, focusing on an insurance-model, which would help homeowners bridge temporary gaps caused by medical crises. We also present a legal proposal for staying foreclosure proceedings during verifiable medical crises, as a way to protect homeowners and to minimize the negative externalities of foreclosure.


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Anonymous said...

Yeah, the cost of medicine in this country is far higher than any other place on earth. We need national health care badly, or at least some reasonable competition (let Thai hospitals open up branches in the US).

Anonymous said...

I am glad someone noticed. Although I would be interested in seeing regional and state to state differences.

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Anonymous said...

If property value doubles, borrowers won't go to REO regardless of their health (they can take out a HELOC if nothing else). If property value falls by half, many will go to REO, regardless of their health (unfortunately, strategic default has become common). A sudden increase in disease is not the cause of the surge in defaults in the last three years. If you want to predict current odds of foreclosure sale, it is good to look first at whether and how much property value has declined since the borrower took out the mortgage.
The sentence in the abstract implying that medical costs caused half of the 10-fold increase in defaults(pre-2006 to post-2007) is silly.
Holding house price (the most important factor) constant, a significant increase in a borrower's medical costs would certainly raise default risk, as does divorce, job loss, or death.

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Unknown said...

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