Pathways After Default: What Happens to Distressed Mortgage Borrowers and Their Homes?
- 440 Downloads
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.
- Adelino, M., Gerardi, K., & Willen, P. S. (2009). Why don’t lenders renegotiate more home mortgages? Redefaults, self-cures, and securitization. Federal Reserve Bank of Boston Public Policy Discussion Papers, No. 09-4.Google Scholar
- Adelino, M., Gerardi, K., & Willen, P. (2010). What explains differences in foreclosure rates? A response to Piskorski, Seru, and Vig. Federal Reserve Bank of Boston Working Paper, No. 10-2.Google Scholar
- Agarwal, S., Amromin, G., Ben-David, I., Chomsisengphet, S., & Evanoff, D.D. (2011). The role of securitization in mortgage renegotiation. Federal Reserve Bank of Chicago Working Paper, No. 2011-02.Google Scholar
- Ambrose, B. W., & Capone, C. A., Jr. (1996). Do lenders discriminate in processing defaults? Cityscape: A Journal of Policy Development and Research, 2(1), 89–98.Google Scholar
- Been, V., Weselcouch, M., Voicu, I., & Murff, S. (2011). Determinants of the incidence of loan modifications. http://ssrn.com/abstract=1941915. Accessed 1 July 2012.
- Brevoort, K. P., & Cooper, C.R. (2010). Foreclosure’s wake: the credit experiences of individuals following foreclosure. Board of Governors of the Federal Reserve System Finance and Economics Discussion Series, No. 2010-59.Google Scholar
- Chan, S., Gedal, M., Been, V., & Haughwout, A. (2010). The role of neighborhood characteristics in mortgage default risk: Evidence from New York City. http://ssrn.com/abstract=1631944. Accessed 1 July 2012.
- Christie, L. (2010). How foreclosure impacts your credit score. CNNMoney.com. http://money.cnn.com/2010/04/22/real_estate/foreclosure_credit_score/index.htm. Accessed 1 July 2012.
- Collins, J., & Reid, C. (2010). Who receives a mortgage modification? Race and income differentials in loan workouts. Federal Reserve Bank of San Francisco Working Paper.Google Scholar
- Collins, J. M., & O’Rourke, C. (2011). Homeownership education and counseling: Do we know what works? Research Institute for Housing America. http://www.housingamerica.org/RIHA/RIHA/Publications/76378_10554_Research_RIHA_Collins_Report.pdf. Accessed 1 July 2012.
- Collins, J. & Reid, C. (2010). Who Receives a Mortgage Modification? Race and Income Differentials in Loan Workouts. Federal Reserve Bank of San Francisco Working Paper 2010-07.Google Scholar
- Crews Cutts, A., & Merrill, W. A. (2008). Interventions in mortgage default: Policies and practices to prevent home loss and lower costs. In N. P. Retsinas & E. S. Belsky (Eds.), Borrowing to live: Consumer and mortgage credit revisited (pp. 203–254). Washington DC: Brookings Institution.Google Scholar
- Foote, C. L., Gerardi, K. S., Goette, L., & Willen, P. S. (2009). Reducing foreclosures: No easy answers. NBER Macroeconomics Annual, 24, 89–138.Google Scholar
- Gerardi, K., Shapiro, A. H., & Willen, P. S. (2007). Subprime outcomes: Risky mortgages, homeownership experiences, and foreclosures. Federal Reserve Bank of Boston Working Paper, No. 07-15.Google Scholar
- Gerardi, K. S., & Willen, P. S. (2009). Subprime mortgages, foreclosures, and urban neighborhoods. The B.E. Journal of Economic Analysis & Policy, 9(3), Article 12.Google Scholar
- Haughwout, A., Okah, E., & Tracy, J. (2009). Second chances: Subprime mortgage modification and re-default. Federal Reserve Bank of New York Staff Reports, No. 417.Google Scholar
- Lender Processing Services. (2010). LPS Mortgage Monitor Report, October 2010. Jacksonville: Lender Processing Services, Inc.Google Scholar
- Voicu, I., Jacob, M., Rengert, K., & Fang, I. (2011). Subprime loan default resolutions: Do they vary across mortgage products and borrower demographic groups? Journal of Real Estate Finance and Economics. doi: 10.1007/s11146-011-9305-4.