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Cost-Benefit Analysis of Single-Family Foreclosure Alternatives

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Author Info

  • Ambrose, Brent W
  • Capone, Charles A, Jr

Abstract

Over the last ten years, single-family mortgage lenders have become more aware of the financial benefits of finding alternatives to foreclosure for borrowers who default on their mortgage obligations. In this article, expected costs of foreclosure alternatives are parameterized to solve for minimum probabilities of borrower success necessary to make pursuing them profitable for lenders. These break-even probabilities are found to be very insensitive to changes in a variety of factors, including interest-rate environments and time horizons. Simulations are performed across house-price-deflation scenarios, loan-to-value ratios, and post-default cure rates. Stochastic processes are introduced through time distributions for foreclosure processing, property disposition, and house-price appreciation. Copyright 1996 by Kluwer Academic Publishers

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Bibliographic Info

Article provided by Springer in its journal Journal of Real Estate Finance & Economics.

Volume (Year): 13 (1996)
Issue (Month): 2 (September)
Pages: 105-20

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Handle: RePEc:kap:jrefec:v:13:y:1996:i:2:p:105-20

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Web page: http://www.springerlink.com/link.asp?id=102945

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Cited by:
  1. Michelle A. Danis & Anthony Pennington-Cross, 2005. "The delinquency of subprime mortgages," Working Papers 2005-022, Federal Reserve Bank of St. Louis.
  2. Michelle A. Danis & Anthony Pennington-Cross, 2005. "A dynamic look at subprime loan performance," Working Papers 2005-029, Federal Reserve Bank of St. Louis.
  3. Holden, Steve & Kelly, Austin & McManus, Doug & Scharlemann, Therese & Singer, Ryan & Worth, John, 2011. "The HAMP NPV model: development and early performance," MPRA Paper 32040, University Library of Munich, Germany.
  4. Eddie Lam, 2002. "A Risk Management Model for MBS Issuers," International Real Estate Review, Asian Real Estate Society, vol. 5(1), pages 169-195.
  5. Terrence Clauretie & Nasser Daneshvary, 2011. "The Optimal Choice for Lenders Facing Defaults: Short Sale, Foreclose, or REO," The Journal of Real Estate Finance and Economics, Springer, vol. 42(4), pages 504-521, May.
  6. Doblas-Madrid, Antonio & Minetti, Raoul, 2013. "Sharing information in the credit market: Contract-level evidence from U.S. firms," Journal of Financial Economics, Elsevier, vol. 109(1), pages 198-223.
  7. deRitis, Cristian & Kuo, Chionglong & Liang, Yongping, 2010. "Payment shock and mortgage performance," Journal of Housing Economics, Elsevier, vol. 19(4), pages 295-314, December.
  8. 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.
  9. 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.
  10. O. Emre Ergungor, 2009. "Foreclosures in Ohio: does lender type matter?," Proceedings, Federal Reserve Bank of San Francisco, issue Jan.
  11. Adelino, Manuel & Gerardi, Kristopher & Willen, Paul S., 2013. "Why don't Lenders renegotiate more home mortgages? Redefaults, self-cures and securitization," Journal of Monetary Economics, Elsevier, vol. 60(7), pages 835-853.
  12. J. Michael Collins & Carolina Reid, 2010. "Who receives a mortgage modification? Race and income differentials in loan workouts," Community Development Investment Center Working Paper 2010-07, Federal Reserve Bank of San Francisco.
  13. Seow Ong & Tien Sing & Alan Teo, 2007. "Delinquency and Default in Arms: The Effects of Protected Equity and Loss Aversion," The Journal of Real Estate Finance and Economics, Springer, vol. 35(3), pages 253-280, October.
  14. Sumit Agarwal & Souphala Chomsisengphet & Lawrence Mielnicki, 2008. "Do Forbearance Plans Help Mitigate Credit Card Losses?," Journal of Family and Economic Issues, Springer, vol. 29(2), pages 191-201, June.
  15. Karikari, John A., 2013. "Why homeowners’ documentation went missing under the Home Affordable Mortgage Program (HAMP)?: An analysis of strategic behavior of homeowners and servicers," Journal of Housing Economics, Elsevier, vol. 22(2), pages 146-162.

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