The Impact of Foreclosure Delay on U.S. Employment

67 Pages Posted: 8 Sep 2015 Last revised: 9 Sep 2015

See all articles by Kyle Herkenhoff

Kyle Herkenhoff

University of Minnesota - Minneapolis

Lee E. Ohanian

University of California, Los Angeles (UCLA) - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: September 2015

Abstract

This paper documents that the time required to initiate and complete a home foreclosure rose from about 9 months on average prior to the Great Recession to an average of 15 months during the Great Recession and afterward. We refer to these changes as foreclosure delay. We also document that many borrowers who are in foreclosure ultimately exit foreclosure and keep their homes by making up for missed mortgage payments. We analyze the impact of foreclosure delay on the U.S. labor market as an implicit credit line from a lender to a borrower (mortgagor) within a search model. In the model, foreclosure delay provides unemployed mortgagors with additional time to search for a high-paying job. We find that foreclosure delay decreases mortgagor employment by about 0.75 percentage points, nearly doubles the stock of delinquent mortgages, increases the rate of homeownership by about 0.3 percentage points, and increases job match quality, as mortgagors search longer. Severe foreclosure delays, such as those observed in Florida and New Jersey, can depress mortgagor employment by up to 1.3 percentage points. The model results are consistent with PSID and SCF data that show that employment rates rise for delinquent mortgagors once the mortgagor is in the foreclosure process.

Suggested Citation

Herkenhoff, Kyle and Ohanian, Lee E., The Impact of Foreclosure Delay on U.S. Employment (September 2015). NBER Working Paper No. w21532. Available at SSRN: https://ssrn.com/abstract=2656935

Kyle Herkenhoff (Contact Author)

University of Minnesota - Minneapolis ( email )

110 Wulling Hall, 86 Pleasant St, S.E.
308 Harvard Street SE
Minneapolis, MN 55455
United States

Lee E. Ohanian

University of California, Los Angeles (UCLA) - Department of Economics ( email )

Box 951477
8283 Bunch Hall
Los Angeles, CA 90095-1477
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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