Advanced Search
MyIDEAS: Login to save this paper or follow this series

Policy Briefings: Are Delays to the Foreclosure Process a Good Thing?


Author Info

  • Higgins, Eric
  • Calomiris, Charles


The United States faces a foreclosure crisis. The Mortgage Bankers Association reported that slightly more than four percent of the loans in the United States are in the foreclosure process as of the third quarter of 2010. RealtyTrac reported in January 2011 that nearly three million homes received foreclosure filings in 2010. In addition to the current foreclosures, there exist a substantial number of potential foreclosures that will occur in the next several years. Goodman (2010) estimates that there may be another seven million homes that will face foreclosure. CoreLogic estimated that nearly 23 percent of all mortgages are underwater as of the third quarter of 2010. This number spikes in the areas hardest hit by the mortgage crisis. The sheer volume of actual and pending foreclosures coupled with a slowdown in the foreclosure process due to legal and political wrangling has increased the time that a home is in foreclosure. The purpose of this policy briefing is to analyze the economics of delaying the resolution of the foreclosure process. We review the literature relating to the macroeconomic effects of delaying foreclosures. We begin by identifying four types of potential costs of delay. First, foreclosure delays inject uncertainty in the consumer balance sheet, which leads to unnecessary and economically damaging delays in consumption. This reverse-stimulus alone could dwarf any further plausible price effects of delaying foreclosures at this stage of the business cycle. Second, delaying foreclosures could impede new housing construction. Housing construction is predicated upon a positive and consistent upward price gradient in the housing market, which will not be established until the market is cleared of delinquent homes. Third, and similar to a consumer’s balance sheet, delaying foreclosures creates uncertainty in banks’ balance sheets, potentially blocking channels of credit and undermining lending. Fourth, delinquent homes that are heading to foreclosure have been shown to aggravate neighborhood blight.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL:
Our checks indicate that this address may not be valid because: 404 Not Found. If this is indeed the case, please notify (Archive Maintainer)
Download Restriction: no

Bibliographic Info

Paper provided by Regulation2point0 in its series Working paper with number 641.

as in new window
Date of creation: Feb 2011
Date of revision:
Handle: RePEc:reg:wpaper:641

Contact details of provider:
Web page:

Related research


This paper has been announced in the following NEP Reports:


References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Mayer, Christopher J. & Somerville, C. Tsuriel, 2000. "Residential Construction: Using the Urban Growth Model to Estimate Housing Supply," Journal of Urban Economics, Elsevier, vol. 48(1), pages 85-109, July.
  2. Atif Mian & Amir Sufi & Francesco Trebbi, 2011. "Foreclosures, House Prices, and the Real Economy," IMES Discussion Paper Series 11-E-27, Institute for Monetary and Economic Studies, Bank of Japan.
  3. Manuel Adelino & Kristopher Gerardi & Paul S. Willen, 2009. "Why don't lenders renegotiate more home mortgages?: redefaults, self-cures, and securitization," Public Policy Discussion Paper 09-4, Federal Reserve Bank of Boston.
  4. Neil Bhutta & Jane Dokko & Hui Shan, 2010. "The depth of negative equity and mortgage default decisions," Finance and Economics Discussion Series 2010-35, Board of Governors of the Federal Reserve System (U.S.).
  5. Barrell, Ray & Davis, E. Philip & Pomerantz, Olga, 2006. "Costs of financial instability, household-sector balance sheets and consumption," Journal of Financial Stability, Elsevier, vol. 2(2), pages 194-216, June.
  6. W. Scott Frame, 2010. "Estimating the effect of mortgage foreclosures on nearby property values: a critical review of the literature," Economic Review, Federal Reserve Bank of Atlanta.
  7. Tammy Leonard & James Murdoch, 2009. "The neighborhood effects of foreclosure," Journal of Geographical Systems, Springer, vol. 11(4), pages 317-332, December.
  8. Daniel Hartley, 2011. "The effect of foreclosures on nearby housing prices: supply or disamenity?," Working Paper 1011, Federal Reserve Bank of Cleveland.
Full references (including those not matched with items on IDEAS)



This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.


Access and download statistics


When requesting a correction, please mention this item's handle: RePEc:reg:wpaper:641. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Archive Maintainer).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.