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

43 Pages Posted: 22 Mar 2015

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: August 2012

Abstract

We evaluate the effects of 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.

Keywords: foreclosure, mortgage, judicial, power of sale, right to cure

JEL Classification: G21, K11, R31

Suggested Citation

Gerardi, Kristopher S. and Lambie-Hanson, Lauren and Willen, Paul S., Do Borrower Rights Improve Borrower Outcomes? Evidence from the Foreclosure Process (August 2012). FRB Atlanta Working Paper No. 2011-16a, Available at SSRN: https://ssrn.com/abstract=2481143 or http://dx.doi.org/10.2139/ssrn.2481143

Kristopher S. Gerardi (Contact Author)

Federal Reserve Bank of Atlanta ( email )

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United States
404-498-8561 (Phone)

HOME PAGE: http://sites.google.com/site/kristophergerardishomepage/

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 )

600 Atlantic Avenue
Boston, MA 02210
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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