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Do borrower rights improve borrower outcomes? Evidence from the foreclosure process

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  • Gerardi, Kristopher
  • Lambie-Hanson, Lauren
  • Willen, Paul S.

Abstract

We evaluate the effects of laws designed to protect borrowers from foreclosure. We find that these laws delay but do not prevent foreclosures. We first compare states that require lenders to seek judicial permission to foreclose with states that do not. Borrowers in judicial states are no more likely to cure and no more likely to renegotiate their loans, but the delays lead to a build-up in these states of persistently delinquent borrowers, the vast majority of whom eventually lose their homes. We next analyze a “right-to-cure” law instituted in Massachusetts on May 1, 2008. Using a difference-in-differences approach to evaluate the effect of the policy, we compare Massachusetts with neighboring states that did not adopt similar laws. We find that the right-to-cure law lengthens the foreclosure timeline but does not lead to better outcomes for borrowers.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Urban Economics.

Volume (Year): 73 (2013)
Issue (Month): 1 ()
Pages: 1-17

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Handle: RePEc:eee:juecon:v:73:y:2013:i:1:p:1-17

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Web page: http://www.elsevier.com/locate/inca/622905

Related research

Keywords: Foreclosure; Mortgage; Judicial; Power of sale; Right to cure;

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  1. Christopher Foote & Kristopher Gerardi & Lorenz Goette & Paul Willen, 2009. "Reducing Foreclosures: No Easy Answers," NBER Working Papers 15063, National Bureau of Economic Research, Inc.
  2. Acemoglu, Daron (ed.), 2010. "NBER Macroeconomics Annual 2009," National Bureau of Economic Research Books, University of Chicago Press, number 9780226002095, September.
  3. Manuel Adelino & Kristopher Gerardi & Paul S. Willen, 2009. "Why Don't Lenders Renegotiate More Home Mortgages? Redefaults, Self-Cures and Securitization," NBER Working Papers 15159, National Bureau of Economic Research, Inc.
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