Specifically, those who underestimate their total nonmortgage debt by $5,000 or more have monthly mortgage payments that are about $41 higher and front-end ratios that are 1.
Controlling for other model covariates, minority borrowers and borrowers with a college degree tend to have higher mortgage payments and front-end ratios.
In line with other studies (Quercia, McCarthy, and Wachter 2003), we measure mortgage consumption in two ways: (1) as the dollar amount of the monthly mortgage payment, and (2) as the ratio of the monthly mortgage payment to monthly household income, referred to here as the front-end ratio.
As shown in Table 2, the average mortgage payment for borrowers in our sample is $815, based on an average purchase price of $102,007, with a resulting average front-end ratio of 22.
To explore the relationship between perceived and actual borrowing capacity and mortgage debt, we first estimate a series of OLS models with the full monthly mortgage payment as the dependent variable (Table 4, columns 1 and 2), and then the front-end ratio as the dependent variable (Table 4, columns 3 and 4).
93) The lack of variation in DTI ratios but wide range of front-end ratios would seem to indicate that borrowers with less recurring nonmortgage debt at origination were more likely to default.
The lack of a similar clustering for front-end ratios may have to do with the characteristics of FHA borrowers or other confounding variables.