Mortgage Property Rights and Post-Default Incentives
Charles A. Capone Jr.
U.S. Department of Housing and Urban Development
Albert D. Metz
Moody's Investors Service
October 15, 2004
American Real Estate and Urban Economics Association International Conference, 2004
This research explores effective (economic) property rights granted to contractual parties when a home mortgage is in default. We build upon an existing literature that describes incentives to lenders and borrowers to pursue or prevent foreclosure of borrower rights to the underlying real estate. Ostensibly, consumer protection laws in this area are designed to re-balance rights and bargaining positions of lender and borrower in order to increase the probability of home retention, post-default. Our empirical analysis uses FHA-insured mortgages in the U.S. and confirms results of earlier research, namely, that longer foreclosure times, if anything, encourage more rather than fewer foreclosure completions. Longer foreclosure times may increase the incentives of lenders to avoid foreclosure but not enough to offset the financial incentives provided to home owners to extract service value from the real estate. In our discussion of foreclosure law we compare typical timelines and procedures used in Canada with those in the U.S.
Number of Pages in PDF File: 50
Keywords: Mortgage Default, loss mitigation, loan workouts
JEL Classification: G21, K11, D19Accepted Paper Series
Date posted: August 7, 2011
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