State Mortgage Foreclosure Policies and Lender Interventions: Impacts on Borrower Behavior in Default
Journal of Policy Analysis and Management, 30(2), 216-232
20 Pages Posted: 12 Nov 2009 Last revised: 5 Feb 2014
Date Written: 2011
Due to the rise in foreclosure filings, policymakers are increasingly concerned with helping families in financial distress keep their homes. This paper tests the extent to which distressed mortgage borrowers benefit from three types of state foreclosure polices: (1) judicial foreclosure proceedings, (2) statutory rights of redemption, and (3) statewide foreclosure-prevention initiatives. Based on an analysis of borrowers in default who reside in 22 cross-state metropolitan statistical area pairs, state policies generally have weak effects. Both judicial foreclosure proceedings and foreclosure prevention initiatives are associated with modest increases in loan modification rates. Using a matching procedure, a lender's letter promoting mortgage default counseling was associated with increases in loan modifications, decreases in loan cures, and decreases in foreclosure starts. The effects of the letter were also stronger in states with judicial proceedings.
Keywords: Mortgage Default, Foreclosure Counseling Evaluation, State Foreclosure Laws
JEL Classification: D10, D12, D18, G18
Suggested Citation: Suggested Citation