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A study on the distribution of the foreclosure lag, its expected capital opportunity cost and its analyses

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  • Tsai, Ming Shann
  • Chiang, Shu Ling
  • Miller, Chen

Abstract

This paper presents models that help lenders to calculate the foreclosure lag and its expected capital opportunity cost. The empirical results show the foreclosure lag fits well with the exponential distribution after linear transformation. The value of the expected capital opportunity cost is nearly twice the mortgage rate. In addition, the economic situations, loan characteristic, and state foreclosure policies significantly influence the foreclosure lag. The extra foreclosure lag tends to be longer in judicial foreclosure states than in states with a redemption policy. Moreover, new U.S. foreclosure laws, enacted after 2008, effectively shorten the foreclosure lag and decrease its volatilities.

Suggested Citation

  • Tsai, Ming Shann & Chiang, Shu Ling & Miller, Chen, 2016. "A study on the distribution of the foreclosure lag, its expected capital opportunity cost and its analyses," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 45(C), pages 156-170.
    • Handle: RePEc:eee:intfin:v:45:y:2016:i:c:p:156-170
    DOI: 10.1016/j.intfin.2016.07.006
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    Cited by:

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    More about this item

    Keywords

    Foreclosure lag; Capital opportunity cost; Foreclosure law; Loan characteristics;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing
    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General

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