Pathways After Default: What Happens to Distressed Mortgage Borrowers and Their Homes?
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We use a detailed dataset of seriously delinquent mortgages to examine the dynamic process of mortgage default—from initial delinquency and default to final resolution of the loan and disposition of the property. We estimate a two-stage competing risk hazard model to assess the factors associated with post-default outcomes, including whether a borrower receives a legal notice of foreclosure. In particular, we focus on a borrower’s ability to avoid a foreclosure auction by getting a modification, by refinancing the loan, or by selling the property. We find that the outcomes of the foreclosure process are significantly related to: loan characteristics including the borrower’s credit history, current loan-to-value and the presence of a junior lien; the borrower’s post-default payment behavior, including the borrower’s participation in foreclosure counseling; neighborhood characteristics such as foreclosure rates, recent house price depreciation and median income; and the borrower’s race and ethnicity.
KeywordsMortgage Default Modification Foreclosure REO
We thank Amy Crews Cutts, Michael Gedal, Josiah Madar, Mary Weselcouch, and the participants in the Association for Public Policy Analysis and Management Fall 2010 and American Real Estate and Urban Economics Mid-Year 2011 conferences for their thoughtful suggestions. We are also grateful to the staff of the Federal Reserve Bank of New York for their help with the LoanPerformance data, as well as to the Public Data Corporation and the New York City Department of Finance for their assistance in providing the additional data needed for this project.
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