Homeowner’s Equity, Rental Cash Flow, and Recourse as Predictors of Default

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Abstract

In the aftermath of the Great Recession of 2007-2009, banking executives feared the impact of increased capital reserve requirements for losses from mortgage defaults. One reason was that home price declines during the Great Recession precipitated mortgage defaults, which increased the percentage of foreclosures as well as accelerated negative equity, and default. The purpose of this correlational study, grounded in Fishbein’s expectancy of value and Vroom’s expectancy theories, was to examine the relationship between the independent variables of homeowner’s equity, rental cash flow value, and recourse, and the dependent variable, default mortgage status. Archival data comprised a sample of 408 single family residences in Alameda County, California, and Shelby, Fayette, and Tipton Counties in Tennessee. The results of the binary logistic regression model indicated the model was a good fit to predict a significant relationship between the variables (χ2 = 3.490, p = 0.322, df = 3). The findings did not reveal a significant relationship between homeowner’s equity, rental cash flow value, recourse, and default mortgage status. The independent variables did not predict mortgage default status. However, a minor relationship was found between homeowner’s equity (p = 0.215), rental cash flow value (p = 0.215), and default mortgage status. A non-significant relationship between the independent variables and default mortgage status indicated that factors other than the study variables influenced default mortgage status. Additional testing indicated price points with a significant relationship.

Authors

• William Callian, Walden University

• Roger Mayer, SUNY College at Old Westbury

• Medhanie Mekonnen, Wilbur Wright College of the City Colleges of Chicago

• Wen-Wen Chien, SUNY College at Old Westbury