Mortgage Property Rights and Post-Default Incentives

American Real Estate and Urban Economics Association International Conference, 2004

50 Pages Posted: 7 Aug 2011

See all articles by Charles A. Capone

Charles A. Capone

Federal Housing Finance Agency

Albert Metz

The Brattle Group

Date Written: October 15, 2004

Abstract

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.

Keywords: Mortgage Default, loss mitigation, loan workouts

JEL Classification: G21, K11, D19

Suggested Citation

Capone, Charles A. and Metz, Albert, Mortgage Property Rights and Post-Default Incentives (October 15, 2004). American Real Estate and Urban Economics Association International Conference, 2004, Available at SSRN: https://ssrn.com/abstract=1802448

Charles A. Capone (Contact Author)

Federal Housing Finance Agency ( email )

451 7th St, SW
Washington, DC 20024
United States
2025851373 (Phone)

Albert Metz

The Brattle Group ( email )

44 Brattle Street
3rd Floor
Cambridge, MA 02138-3736
United States

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