Homeowner's Equity, Rental Cash Flow, and Recourse as Predictors of Default Mortgage Status

Homeowner’s Equity, Rental Cash Flow, and Recourse as Predictors of Default Mortgage Status by William Callian, III MBA, Bethel University, 2011 BA, University of Tennessee, 1973 Doctoral Study Submitted in Partial Fulfillment of the Requirements for the Degree of Doctor of Business Administration Walden University February 2018 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 (χ = 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. Therefore, 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 thatIn 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 (χ = 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. Therefore, 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. Advocates for fair housing laws may use study findings to encourage lenders to change lending policies to reduce the risk of default and increase stability in local communities, which may result in potential positive social change. Homeowner’s Equity, Rental Cash Flow, and Recourse as Predictors of Default Mortgage Status by William Callian, III MBA, Bethel University, 2010 BA, University of Tennessee, 1973 Doctoral Study Submitted in Partial Fulfillment of the Requirements for the Degree of Doctor of Business Administration Walden University February 2018 Dedication This dedication is for hard working, perceptive homeowners who may have discovered a weakness in the credit scoring model, developed a working strategy, and exposed a vulnerability in the mortgage system. In the years preceding the Great Recession, mortgage lenders engaged in strategies of remote underwriting, distant servicing, securitization, and centralized decisions while dictating terms and policies of inflexibility to borrowers without consideration for their needs or feelings. Strategic defaulters and, highly sought, high credit score borrowers might have discovered a way to equalize their power with lenders and work the system to their advantage while simultaneously limiting the negative impact upon their credit, waking the mortgage industry, and starting a movement. Acknowledgments First, I would like to give thanks to God for providing the strength, health, perseverance, and many blessings to complete this study. I would like to thank my beautiful wife, Barbara Ann, for her support, understanding, encouragement, and confidence in my ability to complete the study. I would like to thank my children Daniel and Jacerlyn for their support and understanding and love. I would like to thank my mother and sister for their support, prayers, and understanding even through their health challenges. I would like to thank my support team that was available whenever I called or emailed. I would like to offer special thanks to my committee for their time, patience, and energy to help me complete this study. I am thankful and touched by their genuine concern and joy for my success. Thank you to my chair, Dr. Roger Mayer, and his wife, Dr. Wen-Wen Chien, for their support, patience, expertise, insight, feedback, and encouragement throughout this process. Thank you to my second committee member, Dr. Michael Ewald, for his patience, support, and feedback. Also, thank you to Dr. Julia East for her patience, suggestions, insight, feedback, and encouragement. Finally, I would like to thank the program director Dr. Freda Turner for her support and assistance.