Wednesday, October 22, 2008

What Impact Do Medical Costs Have on Home Mortgage Foreclosures?

That is the subject of a recent paper by Christopher T. Robertson, Richard Egelhof, & Michael Hoke.

The authors studied homeowners going through foreclosure in four states and found a big impact on their being able to stay in their house because of the health care cost issues these families had to deal with.

Here is an excerpt from their work:
"This preliminary study reveals that the standard account is, at best, an inadequate understanding of the causes of mortgage defaults. We found homeowners that tended to have significant equity in their homes and reasonable ratios between their income and their mortgage debt burdens. Few reported that their loans were unaffordable and only about a third said increasing mortgage payments were a factor in their defaults. From the surface, these respondents appear to be able to afford their homes and have no reason to walk away from them. So why are they in default?

"Our evidence suggests that medical disruptions are a major contributor to mortgage default, often striking in combination with other factors. 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, we found that about 7 in 10 of our respondents either self-reported a medical cause of foreclosure, or experienced one of these indicia of medical disruptions in the years before foreclosure. In many cases, homeowners were hit with a perfect storm of factors – a few thousand dollars of medical bills, a few weeks of missed work, and perhaps a divorce or rising interest rate – all combined to push them over the edge into foreclosure."
The survey studied homeowners going through the early part of the mortgage meltdown--focusing on families in the first stage of the foreclosure process in November 2006.

The full report: Christopher T. Robertson, Richard Egelhof, & Michael Hoke, "Get Sick, Get Out: The Medical Causes of Home Foreclosures" Health Matrix 18 (2008): 65-105. You can access the entire report here.
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