Why homeowners default on their mortgages

From The Wall Street Journal:

Why do borrowers default? Many have assumed it’s because mortgage payments are too high. But a new paper from the Federal Reserve Bank of Atlanta argues that unaffordable loans—with high mortgage payments relative to income from the time they’re originated—are “unlikely to be the main reason that borrowers decide to default.” Instead, unemployment and future home price declines are likely to play a bigger role. (The paper looks at loans that are unaffordable from the time they’re originated, and not at loans that may start with low “teaser” rates before jumping higher.)

The Fed paper estimates that a 1-percentage-point increase in the unemployment rate boosts the chance of a 90-day delinquency by 10%-20%, and a 10-percentage point fall in house prices raises the probability of a default by more than half. A 10-percentage-point jump in the debt-to-income ratio, meanwhile, increases the chance of a 90-day delinquency by 7%-11%.