Double Trigger:

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Double Trigger:. Daniel Putman–Student Researcher and Laura Middlesworth –Faculty Collaborator. Does it Explain Differences in State Level Foreclosure Starts?.

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### Double Trigger:

Daniel Putman–Student Researcher and Laura Middlesworth –Faculty Collaborator

Does it Explain Differences in State Level Foreclosure Starts?

Support for this project is from student differential tuition funds through the UWEC Summer Research Experiences for Undergraduates Program.

Double Trigger Theory
• Declining House Value vs. Income Shock
• Bhutta, Dokko, and Shan (2010) found that the "median borrowerdoes not walk away until equity has fallen to -62 percent of the house value.”
• A combination of falling house values and rising unemployment rates explain more than each variable could alone
Methodology & Baseline Regression
• MBAA National Delinquency Survey
• 4th Quarter 2009 until 1st Quarter 2011
• Panel Least Squares

Foreclosure Starts = ε +  β1x1 + β2x2 + β3x3

• x1 = Number of Quarters Since Peak
• x2 = Three Month Unemployment Average (U-3)
• x3 = “Double Trigger” Interaction term
• Demeaned
Double Trigger Term:

β3x3 = β3(x1-meanx1)×(x2-meanx2)

• x1 = Number of Quarters Since Peak
• x2 = Three Month Unemployment Average
Empirical Results

Subprime Foreclosure Starts

x β

3 Month Unemployment Ave. 0.058**

Number of Quarters Since Peak 0.088***

Double Trigger Term 0.016***

Affordability Index (Marginal, Non-Significant)

Regional Dummy VariablesWhite Period Standard Errors

Significance: * (0.1), ** (0.05), *** (.01)

Results (Cont.)

Prime Foreclosure Starts

x β3 Month Unemployment Ave. 0.069***Number of Quarters Since Peak 0.057***Double Trigger Term 0.012***

Affordability Index (Non-Significant)Regional Dummy VariablesWhite Period Fixed Effects

Unemployment and Underemployment
• U6 -“total unemployed [U3], plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force”
• U5 – “total unemployed, plus discouraged workers, plus all other marginally attached workers, as a percent of the civilian labor force” (BLS)

U = U3 + U6 – U5

Results (Cont.)

Subprime Foreclosure Starts

x βNumber of Quarters Since Peak 0.082***Unemployment and Underemployment 0.057**Double Trigger Term 0.012***High Cost Variable (Non-Significant)Regional Dummy VariablesWhite Period Fixed Effects

Results (Cont.)

Prime Foreclosure Starts x βNumber of Quarters Since Peak 0.046***Unemployment and Underemployment 0.058***Double Trigger Term 0.009***

High Cost Variable (Non-Significant)Regional Dummy VariablesWhite Period Fixed Effects

• Division Dummy Variables
• Affordability Index
• Judicial Foreclosure Laws
• High Cost Index
• Recourse Laws
• Bankruptcy Exemptions
Policy Implications
• Hardest Hit Fund
• Implemented shortly after recession
• Largest fall in housing prices
• Largest unemployment problem
• Combination
•  Possible loan modifications