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The Conditional Probability of Foreclosure: An Empirical Analysis of Conventional Mortgage Loan Defaults

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  • Richard A. Phillips
  • James H. VanderHoff

Abstract

This paper analyzes the factors affecting the conditional probability that defaulted residential mortgage loans will foreclose. We analyze a large national sample of conventional loans, which have been in default at least once during the 1988 to 1994 period. For such loans, lenders and borrowers either individually or jointly make choices which lead to the following outcomes: (1) resumption of payments, (2) termination by prepayment, or (3) foreclosure. Our estimates of a logit model indicate that termination option values and local area economic and housing market conditions affect default resolution probabilities. Perhaps more importantly, simulations using the logit model indicate that the efficiency of the default resolution process may be substantially improved by legal and regulatory reforms. Copyright 2004 by the American Real Estate and Urban Economics Association

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Bibliographic Info

Article provided by American Real Estate and Urban Economics Association in its journal Real Estate Economics.

Volume (Year): 32 (2004)
Issue (Month): 4 (December)
Pages: 571-587

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Handle: RePEc:bla:reesec:v:32:y:2004:i:4:p:571-587

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Cited by:
  1. Kristopher Gerardi & Lauren Lambie-Hanson & Paul S. Willen, 2011. "Do borrower rights improve borrower outcomes?: evidence from the foreclosure process," Public Policy Discussion Paper 11-9, Federal Reserve Bank of Boston.
  2. Zhang, Yan, 2013. "Does loan renegotiation differ by securitization status? A transition probability study," Journal of Financial Intermediation, Elsevier, vol. 22(3), pages 513-527.
  3. Ioan Voicu & Marilyn Jacob & Kristopher Rengert & Irene Fang, 2012. "Subprime Loan Default Resolutions: Do They Vary Across Mortgage Products and Borrower Demographic Groups?," The Journal of Real Estate Finance and Economics, Springer, vol. 45(4), pages 939-964, November.
  4. Anthony Pennington-Cross & Souphala Chomsisengphet, 2007. "Subprime Refinancing: Equity Extraction and Mortgage Termination," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 35(2), pages 233-263, 06.
  5. deRitis, Cristian & Kuo, Chionglong & Liang, Yongping, 2010. "Payment shock and mortgage performance," Journal of Housing Economics, Elsevier, vol. 19(4), pages 295-314, December.
  6. Goodman, Allen C. & Smith, Brent C., 2010. "Residential mortgage default: Theory works and so does policy," Journal of Housing Economics, Elsevier, vol. 19(4), pages 280-294, December.
  7. Andrew Carswell, 2009. "Does Housing Counseling Change Consumer Financial Behaviors? Evidence from Philadelphia," Journal of Family and Economic Issues, Springer, vol. 30(4), pages 339-356, December.
  8. Kashian, Russell & Cebula, Richard & Cramer, Eric, 2014. "Foreclosures in an Exurb: Multiple Empirical Analyses through a Prism," MPRA Paper 55557, University Library of Munich, Germany.
  9. Been, Vicki & Weselcouch, Mary & Voicu, Ioan & Murff, Scott, 2013. "Determinants of the incidence of U.S. Mortgage Loan Modifications," Journal of Banking & Finance, Elsevier, vol. 37(10), pages 3951-3973.
  10. Justin Benefield & Ronald Rutherford & Marcus Allen, 2012. "The Effects of Estate Sales of Residential Real Estate on Price and Marketing Time," The Journal of Real Estate Finance and Economics, Springer, vol. 45(4), pages 965-981, November.
  11. Larry Cordell & Liang Geng & Laurie Goodman & Lidan Yang, 2013. "The cost of delay," Working Papers 13-15, Federal Reserve Bank of Philadelphia.
  12. Anthony Pennington-Cross, 2010. "The Duration of Foreclosures in the Subprime Mortgage Market: A Competing Risks Model with Mixing," The Journal of Real Estate Finance and Economics, Springer, vol. 40(2), pages 109-129, February.
  13. Dennis Capozza & Thomas Thomson, 2006. "Subprime Transitions: Lingering or Malingering in Default?," The Journal of Real Estate Finance and Economics, Springer, vol. 33(3), pages 241-258, November.

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