Disability Issues

by Christopher Tarver Robertson, Richard Egelhof, & Michael Hoke†‡

The following are copy and paste excerpts from the online study.

In recent years, there has been national alarm about the rising rate of home foreclosures, which now strike one in every 92 households in America, and which contribute to even broader macroeconomic effects. The handy explanation for the rise in foreclosures is that irresponsible borrowers have been using exotic loan products to purchase homes they cannot in reality afford.

Policymakers and scholars may be surprised to learn that even in the midst of this spike, one of the largest causes of home foreclosures was none of the above. We studied homeowners going through foreclosure in four states and found that medical crises contribute to half of all home foreclosure filings. If these patterns hold nationwide, medical causes may put as many as 1.5 million Americans in jeopardy of losing their homes each year. If these findings are accurate, they help explain the bulk of home foreclosures, which have been occurring with stubborn frequency for a quarter century.

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.

From a policy perspective, this connection between health crises and lost work suggests more attention must be paid to disability insurance, or other ways of bridging these sorts of temporary gaps, in addition to the typical policy focus on insurance for medical bills. Federal disability insurance, under the Social Security program, may not be large enough, or arrive fast enough to keep people in their homes.

For one in twelve respondents (8%), the medical bills became so onerous that they resorted to refinancing their homes, or taking a home equity loan to pay their medical bills, often along with other debt such as credit card bills. Indeed, of those respondents who took out home equity for any purpose, almost one quarter (23%) used it to pay medical bills. This medical debt, now secured by their house, provides one reason why the median respondents owed over $50,000 more on their houses than the original purchase price.

Putting health policy aside, the problem of medical foreclosures could instead be addressed by housing policy and the mortgage industry. One potential response is to create a public or private insurance system to prevent the problem. Such insurance could pay the mortgage during a verifiable medical crisis in the borrowers’ household, allowing those with only a temporary problem to overcome it without losing their homes in the process. For those with permanent medical problems, the insurance could provide a more orderly process of divesting themselves of the asset, while preserving whatever equity they have. Alternatively, for those with permanent disabilities, the debt could simply be forgiven, as is done for federal student loans.

Altogether, these findings suggest that the standard account of mortgage foreclosure is missing a large portion of the story. Mortgage foreclosures are not just the results of bad loans, bad properties, or bad borrowers. Instead, many mortgage foreclosures are the result of unpredictable medical disruptions that impact both the incomes and the expenses of family finances.

http://works.bepress.com/cgi/viewcontent.cgi?article=1001&context=christopher_robertson

Tags: home foreclosures, medical foreclosures, mortgage foreclosures

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