A new study from VantageScore, Fico score’s main adversary, revealed that home price depreciation and unemployment are a deadly combination with respect to loan default.
The company discovered that the default rate is 43 percent higher in regions where unemployment and home depreciation are both above the national average.
With regard to mortgage loans, the default rate was 340 percent higher in regions with both high unemployment and home price depreciation.
But if one of the two characteristics is removed, these regions display a much smaller percentage increase in default.
In areas with just high unemployment, the default rate increased 25 percent.
And in regions with only high home depreciation, the default rate increased 44 percent.
So essentially home price depreciation is a more significant driver of mortgage default than unemployment, but both seem to be necessary for the numbers to explode higher.
It also explains why banks and mortgage underwriters look at layered risk, such as down payment, loan-to-value ratio, employment, capacity to repay, credit, and so forth, as the parts will always affect the whole.