Mortgage Default Among Rural, Low-Income Borrowers

In this working paper, Quercia, McCarthy, and Stegman use data obtained on 874 low income, rural borrowers participating in the Section 502 Home Ownership program administered by the Farmer's Home Administration (FmHA), and apply two multivariate proportional hazard models in order to analyze default decisions among these borrowers over time. The authors cite two key findings relating to default literature: (1) that contrary to prior findings, the size of the mortgage payment relative to borrower income plays a significant part in the default decision; and (2) borrower characteristics traditionally deemed risky (including minority status or being a female head of household) had no significant effect on borrower default. Rather, borrower-related factors--such as a change in marital status or the exodus of children from the household--played a larger part in the default decisions of borrowers participating in the FmHA program.