The Cost of Delay

29 Pages Posted: 27 Apr 2013

See all articles by Larry Cordell

Larry Cordell

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Liang Geng

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Laurie S. Goodman

The Urban Institute - Housing Finance Policy Center

Lidan Yang

Amherst Securities Group LP

Date Written: April 24, 2013

Abstract

In this study, we make use of a massive database of mortgage defaults to estimate REO liquidation timelines and time-related costs resulting from the recent post-crisis interventions in the mortgage market and the freezing of foreclosures due to “robo-signing” revelations. The cost of delay, estimated by comparing today’s time-related costs to those before the start of the financial crisis, is eight percentage points, with enormous variation among states. While costs are estimated to be four percentage points higher in statutory foreclosure states, they are estimated to be 13 percentage points higher in judicial foreclosure states and 19 percentage points higher in the highest-cost state, New York. We discuss the policy implications of these extraordinary increases in time-related costs, including recent actions by the GSEs to raise their guarantee fees 15-30 basis points in five high-cost judicial states. Combined with evidence that foreclosure delays do not improve outcomes for borrowers and that increased delays can have large negative externalities in neighborhoods, the weight of the evidence is that current foreclosure practices merit the urgent attention of policymakers.

Keywords: Mortgage market, Forclosures, REO liquidation timelines, time-related costs

Suggested Citation

Cordell, Larry and Geng, Liang and Goodman, Laurie S. and Yang, Lidan, The Cost of Delay (April 24, 2013). FRB of Philadelphia Working Paper No. 13-15, Available at SSRN: https://ssrn.com/abstract=2256591 or http://dx.doi.org/10.2139/ssrn.2256591

Larry Cordell (Contact Author)

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

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Liang Geng

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

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Laurie S. Goodman

The Urban Institute - Housing Finance Policy Center ( email )

2100 M Street NW
Washington, DC 20037
United States

Lidan Yang

Amherst Securities Group LP ( email )

United States

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