The Journal of Real Estate Finance and Economics

, Volume 48, Issue 2, pp 342–379 | Cite as

Pathways After Default: What Happens to Distressed Mortgage Borrowers and Their Homes?

  • Sewin Chan
  • Claudia Sharygin
  • Vicki Been
  • Andrew Haughwout


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.


Mortgage 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.


  1. 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
  2. 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
  3. 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
  4. 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
  5. Ambrose, B. W., & Capone, C. A., Jr. (1998). Modeling the conditional probability of foreclosure in the context of single-family mortgage default resolutions. Real Estate Economics, 26(3), 391–429.CrossRefGoogle Scholar
  6. Been, V., Weselcouch, M., Voicu, I., & Murff, S. (2011). Determinants of the incidence of loan modifications. Accessed 1 July 2012.
  7. 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
  8. Capozza, D., & Thomson, T. (2006). Subprime transitions: lingering or malingering in default? Journal of Real Estate Finance and Economics, 33(3), 241–258.CrossRefGoogle Scholar
  9. Chan, S., Gedal, M., Been, V., & Haughwout, A. (2010). The role of neighborhood characteristics in mortgage default risk: Evidence from New York City. Accessed 1 July 2012.
  10. Christie, L. (2010). How foreclosure impacts your credit score. Accessed 1 July 2012.
  11. 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
  12. Collins, J. M., & O’Rourke, C. (2011). Homeownership education and counseling: Do we know what works? Research Institute for Housing America. Accessed 1 July 2012.
  13. 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
  14. 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
  15. Danis, M. A., & Pennington-Cross, A. N. (2005). A dynamic look at subprime loan performance. Journal of Fixed Income, 15(1), 28–39.CrossRefGoogle Scholar
  16. Danis, M. A., & Pennington-Cross, A. N. (2008). The delinquency of subprime mortgages. Journal of Economics and Business, 60(1–2), 67–90.CrossRefGoogle Scholar
  17. 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
  18. 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
  19. 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
  20. 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
  21. Lauria, M., Baxter, V., & Bordelon, B. (2004). An investigation of the time between mortgage default and foreclosure. Housing Studies, 19(4), 581–600.CrossRefGoogle Scholar
  22. Lender Processing Services. (2010). LPS Mortgage Monitor Report, October 2010. Jacksonville: Lender Processing Services, Inc.Google Scholar
  23. Pennington-Cross, A. N. (2010). The duration of foreclosures in the subprime mortgage market: A competing risks model with mixing. Journal of Real Estate Finance and Economics, 40(2), 109–129.CrossRefGoogle Scholar
  24. Pennington-Cross, A. N., & Ho, G. (2010). The termination of subprime hybrid and fixed-rate mortgages. Real Estate Economics, 38(3), 399–426.CrossRefGoogle Scholar
  25. Piskorski, T., Seru, A., & Vig, V. (2010). Securitization and distressed loan renegotiation: Evidence from the subprime mortgage crisis. Journal of Financial Economics, 97(3), 369–397.CrossRefGoogle Scholar
  26. 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.

Copyright information

© Springer Science+Business Media New York 2013

Authors and Affiliations

  • Sewin Chan
    • 1
  • Claudia Sharygin
    • 2
  • Vicki Been
    • 3
  • Andrew Haughwout
    • 4
  1. 1.Robert F. Wagner School of Public ServiceNew York UniversityNew YorkUSA
  2. 2.Urban InstituteWashington, DCUSA
  3. 3.New York University School of LawNew YorkUSA
  4. 4.Federal Reserve Bank of New YorkNew YorkUSA

Personalised recommendations