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The Effect of State Foreclosure Laws on Loan Losses: Evidence from the Mortgage Insurance Industry

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  • Clauretie, Terrence M
  • Herzog, Thomas N
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    Abstract

    This paper analyzes the effect of three major provisions of state foreclosure laws (procedure, redemption period, and provision for deficiency judgment) on loan losses as reflected in the claims paid by private mortgage insurers and the FHA. It also explores the significance of the incentive conflict between the lender and the insurer in terms of the presence or absence of a coinsurance relationship and the existence of a deficiency judgment. The results demonstrate that foreclosure laws have a significant effect on loan losses and that the existence of a deficiency judgment affects the incentive conflict between lender and insurer. Copyright 1990 by Ohio State University Press.

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    Bibliographic Info

    Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

    Volume (Year): 22 (1990)
    Issue (Month): 2 (May)
    Pages: 221-33

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    Handle: RePEc:mcb:jmoncb:v:22:y:1990:i:2:p:221-33

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    Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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    Cited by:
    1. Kelly D. Edmiston & Roger Zalneraitis, 2007. "Rising foreclosures in the United States: a perfect storm," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 115-145.
    2. Brent Ambrose & Anthony Sanders, 2004. "Legal Restrictions in Personal Loan Markets," The Journal of Real Estate Finance and Economics, Springer, vol. 30(2), pages 133-151, November.
    3. Larry Cordell & Liang Geng & Laurie Goodman & Lidan Yang, 2013. "The cost of delay," Working Papers 13-15, Federal Reserve Bank of Philadelphia.
    4. Anthony Pennington-Cross, 2006. "The Value of Foreclosed Property," Journal of Real Estate Research, American Real Estate Society, vol. 28(2), pages 193-214.
    5. Karen M. Pence, 2003. "Foreclosing on opportunity: state laws and mortgage credit," Finance and Economics Discussion Series 2003-16, Board of Governors of the Federal Reserve System (U.S.).
    6. Ronel Elul, 2005. "Collateral, credit history, and the financial decelerator," Working Papers 05-23, Federal Reserve Bank of Philadelphia.
    7. Magda Bianco & Tullio Jappelli & Marco Pagano, 2001. "Courts and Banks: Effects of Judicial Enforcement on Credit Markets," CSEF Working Papers 58, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 09 Apr 2002.
    8. 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.
    9. Allen C. Goodman & Brent C. Smith, 2010. "Housing default: theory works and so does policy," Working Paper 10-10, Federal Reserve Bank of Richmond.
    10. Chintal Desai & Gregory Elliehausen & Jevgenijs Steinbuks, 2013. "Effects of Bankruptcy Exemptions and Foreclosure Laws on Mortgage Default and Foreclosure Rates," The Journal of Real Estate Finance and Economics, Springer, vol. 47(3), pages 391-415, October.
    11. Marschoun, Michael, 2000. "Availability of Mortgage Loans in Volatile Real Estate Markets," Journal of Urban Economics, Elsevier, vol. 47(3), pages 443-469, May.
    12. Gwinner, William B. & Sanders, Anthony, 2008. "The sub prime crisis : implications for emerging markets," Policy Research Working Paper Series 4726, The World Bank.
    13. Hajime Tomura, 2007. "Firms Dynamics, Bankruptcy Laws and Total Factor Productivity," Working Papers 07-17, Bank of Canada.
    14. Elul, Ronel, 2008. "Collateral, credit history, and the financial decelerator," Journal of Financial Intermediation, Elsevier, vol. 17(1), pages 63-88, January.
    15. Gordon W. Crawford & Eric Rosenblatt, 1995. "Efficient Mortgage Default Option Exercise: Evidence from Loss Severity," Journal of Real Estate Research, American Real Estate Society, vol. 10(5), pages 543-556.
    16. Park, Yun W. & Bang, Doo Won, 2014. "Loss given default of residential mortgages in a low LTV regime: Role of foreclosure auction process and housing market cycles," Journal of Banking & Finance, Elsevier, vol. 39(C), pages 192-210.
    17. Qi, Min & Yang, Xiaolong, 2009. "Loss given default of high loan-to-value residential mortgages," Journal of Banking & Finance, Elsevier, vol. 33(5), pages 788-799, May.

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