The cost of delay
In this study, we make use of a massive database of mortgage defaults to estimate REO liquidation timelines and time-related costs resulting from the recent post-crisis interventions in the mortgage market and the freezing of foreclosures due to “robo-signing” revelations. The cost of delay, estimated by comparing today’s time-related costs to those before the start of the financial crisis, is eight percentage points, with enormous variation among states. While costs are estimated to be four percentage points higher in statutory foreclosure states, they are estimated to be 13 percentage points higher in judicial foreclosure states and 19 percentage points higher in the highest-cost state, New York. We discuss the policy implications of these extraordinary increases in time-related costs, including recent actions by the GSEs to raise their guarantee fees 15-30 basis points in five high-cost judicial states. Combined with evidence that foreclosure delays do not improve outcomes for borrowers and that increased delays can have large negative externalities in neighborhoods, the weight of the evidence is that current foreclosure practices merit the urgent attention of policymakers.
|Date of creation:||2013|
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- Anthony Pennington-Cross, 2010.
"The Duration of Foreclosures in the Subprime Mortgage Market: A Competing Risks Model with Mixing,"
The Journal of Real Estate Finance and Economics,
Springer, vol. 40(2), pages 109-129, February.
- Anthony Pennington-Cross, 2006. "The duration of foreclosures in the subprime mortgage market: a competing risks model with mixing," Working Papers 2006-027, Federal Reserve Bank of St. Louis.
- Gerardi, Kristopher & Lambie-Hanson, Lauren & Willen, Paul S., 2013. "Do borrower rights improve borrower outcomes? Evidence from the foreclosure process," Journal of Urban Economics, Elsevier, vol. 73(1), pages 1-17.
- Kristopher S. Gerardi & Lauren Lambie-Hanson & Paul S. Willen, 2011. "Do borrower rights improve borrower outcomes?: evidence from the foreclosure process," Public Policy Discussion Paper 11-9, Federal Reserve Bank of Boston.
- Kristopher Gerardi & Lauren Lambie-Hanson & Paul S. Willen, 2011. "Do Borrower Rights Improve Borrower Outcomes? Evidence from the Foreclosure Process," NBER Working Papers 17666, National Bureau of Economic Research, Inc.
- Kristopher S. Gerardi & Lauren Lambie-Hanson & Paul S. Willen, 2011. "Do borrower rights improve borrower outcomes? Evidence from the foreclosure process," FRB Atlanta Working Paper 2011-16, Federal Reserve Bank of Atlanta.
- Atif Mian & Amir Sufi & Francesco Trebbi, 2015. "Foreclosures, House Prices, and the Real Economy," Journal of Finance, American Finance Association, vol. 70(6), pages 2587-2634, December.
- Atif Mian & Amir Sufi & Francesco Trebbi, 2011. "Foreclosures, House Prices, and the Real Economy," NBER Working Papers 16685, National Bureau of Economic Research, Inc.
- 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.
- Clauretie, Terrence M & Herzog, Thomas N, 1990. "The Effect of State Foreclosure Laws on Loan Losses: Evidence from the Mortgage Insurance Industry," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 22(2), pages 221-233, May.
- Richard A. Phillips & James H. VanderHoff, 2004. "The Conditional Probability of Foreclosure: An Empirical Analysis of Conventional Mortgage Loan Defaults," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 32(4), pages 571-587, December.
- Richard A. Phillips & Eric M. Rosenblatt, 1997. "The Legal Environment and the Choice of Default Resolution Alternatives: An Empirical Analysis," Journal of Real Estate Research, American Real Estate Society, vol. 13(2), pages 145-154.
- Karen M. Pence, 2006. "Foreclosing on Opportunity: State Laws and Mortgage Credit," The Review of Economics and Statistics, MIT Press, vol. 88(1), pages 177-182, February.
- J. Michael Collins & Ken Lam & Christopher E. Herbert, 2011. "State mortgage foreclosure policies and lender interventions: Impacts on borrower behavior in default," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 30(2), pages 216-232, Spring. Full references (including those not matched with items on IDEAS)
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