Determinants of Mortgage Default and Consumer Credit Use: The Effects of Foreclosure Laws and Foreclosure Delays

33 Pages Posted: 26 Jun 2015 Last revised: 28 Oct 2015

See all articles by Sewin Chan

Sewin Chan

New York University (NYU) - Robert F. Wagner Graduate School of Public Service

Andrew Haughwout

Federal Reserve Bank of New York

Andrew T. Hayashi

University of Virginia School of Law

Wilbert van der Klaauw

Federal Reserve Bank of New York; IZA

Date Written: June 1, 2015

Abstract

The mortgage default decision is part of a complex household credit management problem. We examine how factors affecting mortgage default spill over to other credit markets. As home equity turns negative, homeowners default on mortgages and HELOCs at higher rates, whereas they prioritize repaying credit cards and auto loans. Larger unused credit card limits intensify the preservation of credit cards over housing debt. Although mortgage non-recourse statutes increase default on all types of housing debt, they reduce credit card defaults. Foreclosure delays increase default rates for both housing and non-housing debts. Our analysis highlights the interconnectedness of debt repayment decisions.

Keywords: mortgage default, state foreclosure laws, consumer finance

JEL Classification: D12, D14, G1, K10

Suggested Citation

Chan, Sewin and Haughwout, Andrew F. and Hayashi, Andrew T. and van der Klaauw, H. Wilbert, Determinants of Mortgage Default and Consumer Credit Use: The Effects of Foreclosure Laws and Foreclosure Delays (June 1, 2015). FRB of New York Staff Report No. 732; NYU Wagner Research Paper No. 2622619. Available at SSRN: https://ssrn.com/abstract=2622619

Sewin Chan

New York University (NYU) - Robert F. Wagner Graduate School of Public Service ( email )

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Andrew F. Haughwout (Contact Author)

Federal Reserve Bank of New York ( email )

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Andrew T. Hayashi

University of Virginia School of Law ( email )

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H. Wilbert Van der Klaauw

Federal Reserve Bank of New York ( email )

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