Do Borrower Rights Improve Borrower Outcomes? Evidence from the Foreclosure Process

49 Pages Posted: 17 Dec 2011 Last revised: 4 Jul 2014

See all articles by Kristopher Gerardi

Kristopher Gerardi

Federal Reserve Bank of Atlanta

Lauren Lambie-Hanson

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Paul Willen

Federal Reserve Bank of Boston - Research Department; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: December 2011

Abstract

We evaluate laws designed to protect borrowers from foreclosure. We find that these laws delay but do not prevent foreclosures. We first compare states that require lenders to seek judicial permission to foreclose with states that do not. Borrowers in judicial states are no more likely to cure and no more likely to renegotiate their loans, but the delays lead to a build-up in these states of persistently delinquent borrowers, the vast majority of whom eventually lose their homes. We next analyze a "right-to-cure" law instituted in Massachusetts on May 1, 2008. Using a difference-in-differences approach to evaluate the effect of the policy, we compare Massachusetts with neighboring states that did not adopt similar laws. We find that the right-to-cure law lengthens the foreclosure timeline but does not lead to better outcomes for borrowers.

Suggested Citation

Gerardi, Kristopher S. and Lambie-Hanson, Lauren and Willen, Paul S., Do Borrower Rights Improve Borrower Outcomes? Evidence from the Foreclosure Process (December 2011). NBER Working Paper No. w17666, Available at SSRN: https://ssrn.com/abstract=1973877

Kristopher S. Gerardi (Contact Author)

Federal Reserve Bank of Atlanta ( email )

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Lauren Lambie-Hanson

Federal Reserve Banks - Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

HOME PAGE: http://sites.google.com/laurenlambiehanson

Paul S. Willen

Federal Reserve Bank of Boston - Research Department ( email )

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Boston, MA 02210
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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