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Pathways after Default: What Happens to Distressed Mortgage Borrowers and Their Homes?

48 Pages Posted: 18 Sep 2011 Last revised: 2 Nov 2011

Sewin Chan

New York University (NYU) - Robert F. Wagner Graduate School of Public Service

Claudia Sharygin

Independent

Vicki Been

New York University School of Law

Andrew Haughwout

Federal Reserve Bank of New York

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Date Written: August 15, 2011

Abstract

We use a detailed dataset of seriously delinquent mortgages to examine the dynamic process of mortgage default – from initial delinquency and default to final resolution of the loan and disposition of the property. We estimate a two-stage competing risk hazard model to assess the factors associated with whether a borrower behind on mortgage payments receives a legal notice of foreclosure, and with what ultimately happens to the borrower and property. In particular, we focus on a borrower’s ability to avoid a foreclosure auction by getting a modification, by refinancing the loan, or by selling the property. We find that the outcomes of the foreclosure process are significantly related to: the terms of the loan; the borrower’s credit history; current loan-to-value and the presence of a junior lien; the borrower’s post-default payment behavior; the borrower’s participation in foreclosure counseling; neighborhood characteristics such as foreclosure rates, recent house price depreciation and median income; and the borrower’s race and ethnicity.

Keywords: mortgage, default, modification, foreclosure, REO

JEL Classification: R31, R38

Suggested Citation

Chan, Sewin and Sharygin, Claudia and Been, Vicki and Haughwout, Andrew, Pathways after Default: What Happens to Distressed Mortgage Borrowers and Their Homes? (August 15, 2011). NYU Law and Economics Research Paper No. 11-33. Available at SSRN: https://ssrn.com/abstract=1928212 or http://dx.doi.org/10.2139/ssrn.1928212

Sewin Chan (Contact Author)

New York University (NYU) - Robert F. Wagner Graduate School of Public Service ( email )

The Puck Building
295 Lafayette Street, Second Floor
New York, NY 10012
United States

Claudia Sharygin

Independent ( email )

No Address Available

Vicki Been

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States
212-998-6223 (Phone)
212-995-4341 (Fax)

Andrew F. Haughwout

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-2685 (Phone)
212-720-1844 (Fax)

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