Federal Reserve Bank of New York
Determinants of Mortgage Default and
Consumer Credit Use: The Effects of
Foreclosure Laws and Foreclosure Delays
Wilbert van der Klaauw
Staff Report No. 732
This paper presents preliminary findings and is being distributed to economists
and other interested readers solely to stimulate discussion and elicit comments.
The views expressed in this paper are those of the authors and do not necessarily
reflect the position of the Federal Reserve Bank of New York or the Federal
Reserve System. Any errors or omissions are the responsibility of the authors.
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.