Pathways after Default: What Happens to Distressed Mortgage Borrowers and Their Homes?
New York University (NYU) - Robert F. Wagner Graduate School of Public Service
New York University School of Law
Federal Reserve Bank of New York
August 15, 2011
NYU Law and Economics Research Paper No. 11-33
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.
Number of Pages in PDF File: 48
Keywords: mortgage, default, modification, foreclosure, REO
JEL Classification: R31, R38
Date posted: September 18, 2011 ; Last revised: November 2, 2011