Calem, Paul S. and Jagtiani, Julapa and Lang, William W., Foreclosure Delay and Consumer Credit Performance

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Foreclosure Delay and Consumer Credit Performance

Foreclosure Delay and Consumer Credit Performance

Foreclosure Delay and Consumer Credit Performance

 

Paul S. Calem

Federal Reserve Banks – Federal Reserve Bank of Philadelphia

Julapa Jagtiani

Federal Reserve Banks – Federal Reserve Bank of Philadelphia

William W. Lang

Federal Reserve Bank of Philadelphia

July 2, 2015

FRB of Philadelphia Working Paper No. 15-24
Abstract:

The deep housing market recession from 2008 through 2010 was characterized by a steep rise in the number of foreclosures and lengthening foreclosure timelines. The average length of time from the onset of delinquency through the end of the foreclosure process also expanded significantly, averaging up to three years in some states. Most individuals undergoing foreclosure were experiencing serious financial stress. However, the extended foreclosure timelines enabled mortgage defaulters to live in their homes without making mortgage payments until the end of the foreclosure process, thus providing temporary income and liquidity benefits from lower housing costs. This paper investigates the impact of extended foreclosure timelines on borrower performance with credit card debt. Our results indicate that a longer period of nonpayment of mortgage expenses results in higher cure rates on delinquent credit cards and reduced credit card balances. Foreclosure process delays may have mitigated the impact of the economic downturn on credit card default.
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