I recently speculated about Californians and why their default rates had been so low. 

That theory may hold more water now that Iowans are defaulting on their home loans at a faster clip than the national average. 

The biggest difference between homes in Iowa and California is the rate at values are currently appreciating.  In Q1 2005, Iowa ranked 43rd nationally at +5.2%. California, by contrast, appreciated +25%.

The next biggest difference between homes in Iowa and California is the average home value.  In Iowa, it's in the low $100s; in California, the figure is nearly five times higher. 

Combine the two and we can see that:

1. Home equity is building at a slower pace in Iowa versus California
2. Net worth is growing at a smaller multiple in Iowa versus California

5.2% of $125,000 is a lot less "wealth on paper" than 25% of $550,000 (or more).

An automobile costs the same amount in Des Moines as in Los Angeles.  So do most big ticket items.  The major difference is that an Iowan cannot use home equity to pay for goods like a Californian can because their available dollars are much less.

Perhaps the reason why Iowans are defaulting at a faster rate that the rest of the nation is because they can't reduce their overall monthly payments using home equity like residents of other states (like California) can.

It's not that Iowans are taking on more debt, in other words, it's that they don't as much ability to use their home equity as a form of repayment.

Dan Green is an active loan officer. Email or call 513-443-2020. Dan is on Twitter at @mortgagereports.