Who says all academics are mindless time-wasters? A pair of brave scholars have demonstrated a correlation between obesity and mortgage defaults. A bad credit report is good evidence of insufficient thrift, but a good credit report is evidence of nothing dispositive. A bulging waistline, on the other hand…
We show that obesity is an economically significant predictor of mortgage delinquencies at the county level. In practice, however, loan contracts do not incorporate easily verifiable health risk factors such as obesity. The discrepancy between theory and practice suggests the existence of substantial cross-subsidization and misallocation of funds in the loan market. The potential for business opportunities and policy implications warrants further investigation of our results with more detailed, albeit costly data.
This is pretty dumb, practically speaking, but it’s nice to see that the idea of pre-existing conditions might have a future, now that it’s been outlawed where it actually makes sense, in the health insurance business.
As an aside, our own Tom Vanderwell makes a cameo appearance in this “study.”
Mitchell says:
Well, let’s think about it… (and I really hope I don’t offend anyone here) but obesity usually stems from irresponsibility, so naturally, someone who is irresponsible with their own body will probably be irresponsible in the long run with their finances.
July 13, 2010 — 8:59 am
Mike says:
The pre-existing condition analogy is off the mark. No one is saying obese people should be denied mortgages. It’s about risk premiums, which are still alive and well in the health insurance business.
July 13, 2010 — 10:43 am
Thomas Johnson says:
Whooee! Since all the lenders are government owned entities in some way, and skinny Barney Frank is the FNMA poster boy and Chairman of the Financial Services Committee, this should be really interesting.
What would the mortgage risk premium for HIV positive be?
Certainly HIV positive would command a higher risk premium than obesity. Lose 25 pounds and you can get a 10% downpayment.
If you don’t eat your vegetables, you will never get an A paper mortgage!
July 13, 2010 — 12:56 pm
Tom Vanderwell says:
Gregg,
Thanks for the mention. I didn’t know that they picked that up and quoted it. Pretty funny…..
Tom
July 13, 2010 — 2:18 pm
Robert F. says:
This post reminds me of Freakonomics. Very interesting correlation.
July 14, 2010 — 11:18 am
Marc Knight says:
It’s amusing what people can come up with these days. Give the proponents an A for effort. The analogy is quite ingenious but it all ends there…it’s way off the mark. Their main argument goes that obesity is a predictor of health risk and that health risk is a predictor of loan risk. Actually, the best predictors are credit score and credit history. Now, what happens if your credit score is great but your BMI is too high? You get denied! My advice is to consume three servings of vegetables a day in order to qualify for a government insured loan.
July 15, 2010 — 11:39 am