Foreclosure delay and consumer credit performance

Paul S. Calem, Julapa Jagtiani and William Lang

No 14-8, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: Superseded by Working Paper 15-24.The deep housing market recession from 2008 through 2010 was characterized by a steep increase in the number of foreclosures.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.

Keywords: Mortgage Default; Foreclosure; Foreclosure Delay; Credit Card Default (search for similar items in EconPapers)
JEL-codes: G02 G21 G28 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2014-03-09
New Economics Papers: this item is included in nep-ban and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Foreclosure Delay and Consumer Credit Performance (2017)
Working Paper: Foreclosure delay and consumer credit performance (2015)
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