Trading Equity for Liquidity: Bank Data on the Relationship Between Liquidity and Mortgage Default
Author: Chen Zhao, Diana Farrell, Kanav Bhagat
Topic: Credit & Debt, Financial well-being
Publisher: J.P. Morgan Chase Institute
Location: United States
Format: Report
Content Type: Research
Publication Date: June 28, 2019

For many, homeownership is a vital part of the American dream. Buying a home represents one of the largest lifetime expenditures for most homeowners, and the mortgage has generally become the financing instrument of choice. For many families, their mortgage will be their greatest debt and their mortgage payment will be their largest recurring monthly expense.

In this report, we present a combination of new analysis and previous findings from the JPMorgan Chase Institute body of housing finance research to answer important questions about the role of liquidity, equity, income levels, and payment burden as determinants of mortgage default. Our analysis suggests that liquidity may have been a more important predictor of mortgage default than equity, income level, or payment burden.

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