Should mortgage lenders ask borrowers about their sex lives, health habits, or other behaviors? Sure it may sound outrageous and intrusive, but some might argue that certain life events exhibit specific behaviors that could influence your financial status. To the point: recent research has pointed to correlations between certain life events and foreclosure.
Don’t get me wrong, credit reports are a great tool for providing a snapshot of your current ability to manage your financial picture. An examination of your credit report can provide something akin to a “credit risk analysis;” which is often used to predict the borrower’s ability to repay.
Although a credit report and credit score can provide a snapshot of how a borrower looks at the time of a loan application, trouble may be brewing in the borrower’s life that has not yet affected their credit history. Neil & Neil (2010) indicate that financial issues and foreclosure are often due unexpected causes. They identified the following sources as being reasons for foreclosure: loss of employment; increased debt/financial obligations; job transfer; deteriorating health; and family discord (Neil, B. A., & Neil, J. J. (2010). Financial options for mortgagors in a declining economic market. Journal of Business & Economics Research, 8(3), 25.).
Employment issues and increased debt obligations are often thought of as being linked to foreclosure for obvious reasons. However, health care and family discord are often underestimated as links to financial difficulty and foreclosure.
Determining if there is a relationship between health status and foreclosure, Pollack & Lynch (2009) compared a sample of people undergoing foreclosure in the Philadelphia, PA area to a community sample in the same region. They found that 27.7% of the foreclosure sample “owed money to medical creditors;” 36.7% of that sample met the criteria for depression; while 9% indicated that medical problems (their own or a family member’s) was the primary reason for their foreclosure. Results of their study indicate that the foreclosure sample was more likely to not have insurance coverage or not have filled a prescription within a year of a foreclosure than the community sample. They concluded that foreclosure affects an already vulnerable population, and suggest that a combination of mortgage counseling and health screening efforts be undertaken (Pollack, C. E., & Lynch, J. (2009). Health status of people undergoing foreclosure in the Philadelphia region. American Journal of Public Health, 99(10), 1833.).
It has been stated that one of the top reasons for divorce is due to financial issues; so, like health concerns, family discord can also be concurrent with foreclosure. In a study of housing counseling effectiveness, Carswell (2009) states that divorce (like medical expenditures) can undermine home ownership and contribute to one’s financial behavior; and suggests housing counseling be sensitive to these issues (Carswell, A. T. (2009). Does housing counseling change consumer financial behaviors? Evidence from Philadelphia. Journal of Family and Economic Issues, 30(4), 339).
Like Pollack and Lynch’s study, which identified a correlation between foreclosure and health concerns, direct causality between certain life events and foreclosure have not been fully established. Although it may seem common sense to say there are links between these life events and foreclosure, one must be careful not to say that one causes the other; and therefore keep questions about one’s family life and health in the physician’s office instead of a mortgage application.
by Dan Krell
Copyright © 2011
This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.