Foreclosure Delay and Consumer Credit Performance

Posted: 20 Mar 2014 Last revised: 24 Jul 2015

See all articles by Paul S. Calem

Paul S. Calem

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Julapa Jagtiani

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

William W. Lang

Promontory Financial Group

Multiple version iconThere are 2 versions of this paper

Date Written: March 9, 2014

Abstract

The deep housing market recession from 2008 through 2010 was characterized by a steep increase in the number of foreclosures. Foreclosure timelines — the length of time between initial mortgage delinquency and completion of foreclosure — also expanded significantly, averaging up to three years in some states. Most individuals undergoing foreclosure are experiencing serious financial stress. However, extended foreclosure timelines enable mortgage defaulters to live in their homes without making housing payments until the completion of the foreclosure process, thus providing a liquidity benefit. This paper tests whether the resulting liquidity was used to help cure nonmortgage credit delinquency. The authors find a significant relationship between longer foreclosure timelines and household performance on nonmortgage consumer credit during and after the foreclosure process. Their results indicate that a longer period of nonpayment of housing-related expenses results in higher cure rates on delinquent nonmortgage debts and improved household balance sheets. Foreclosure delay may have mitigated the impact of the economic downturn on credit card default. However, credit card performance may deteriorate in the future as the current foreclosure backlog is cleared and the affected households once again incur housing expenses.

Note: Superseded by Working Paper 15-24.

Keywords: Mortgage Default, Foreclosure, Foreclosure Delay, Credit Card Default

JEL Classification: G28, G21, G02

Suggested Citation

Calem, Paul S. and Jagtiani, Julapa A. and Lang, William W., Foreclosure Delay and Consumer Credit Performance (March 9, 2014). FRB of Philadelphia Working Paper No. 14-8, Available at SSRN: https://ssrn.com/abstract=2411030 or http://dx.doi.org/10.2139/ssrn.2411030

Paul S. Calem (Contact Author)

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

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Julapa A. Jagtiani

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

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

William W. Lang

Promontory Financial Group ( email )

1201 Pennsylvania Avenue, NW
Suite 617
Washington, DC 20004
United States

HOME PAGE: http://www.promontory.com

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