how does a falling economy cause people to default on their house mortgages, if their loan amount and income stay the same?
In: Economics
In 2008, not all of the mortgages had fixed payments. There were some which had “payment options” which let you pay less than the full amount in some months and more in others while other had “teaser rates” which meant the payment would be low in years one and two and increase afterwards. A lot of people paid the minimum until the payment automatically went up at which point they could no longer cashflow month to month. Most of these creative mortgage are gone.
In 2008 there were also a bunch of mortgages given to deadbeats because “home prices always go up” so they thought the mortgage would be good.
In most recessions, some percentage of people lose their jobs. Also, some commission based people (car sales, real estate, tipped waiters) do in fact see a fall in income. Those people are much more likely to lose a house.
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