The Influence of Foreclosure Delays on Borrowers' Default Behavior

Document Type

Article

Publication Date

9-1-2015

Abstract

This paper conducts loan-level analysis to investigate the influence of expected foreclosure delay on a borrower's default propensity. We include the actual foreclosure times in the analysis to capture the dynamic nature of foreclosure duration. Consistent with theoretical predictions, we find a statistically and economically significant impact of foreclosure delay on borrower default behavior. In the current market condition where many borrowers have negative equity, the increase in delay may make default an optimal choice for more borrowers. The negative effect of increased foreclosure delay may need to be considered when devising policies to aid troubled borrowers.

Publication Source (Journal or Book title)

Journal of Money Credit and Banking

First Page

1205

Last Page

1222

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