Working Paper: NBER ID: w17666
Authors: Kristopher Gerardi; Lauren Lambiehanson; Paul S. Willen
Abstract: We evaluate laws designed to protect borrowers from foreclosure. We find that these laws delay but do not prevent foreclosures. We first compare states that require lenders to seek judicial permission to foreclose with states that do not. Borrowers in judicial states are no more likely to cure and no more likely to renegotiate their loans, but the delays lead to a build-up in these states of persistently delinquent borrowers, the vast majority of whom eventually lose their homes. We next analyze a "right-to-cure" law instituted in Massachusetts on May 1, 2008. Using a difference-in-differences approach to evaluate the effect of the policy, we compare Massachusetts with neighboring states that did not adopt similar laws. We find that the right-to-cure law lengthens the foreclosure timeline but does not lead to better outcomes for borrowers.
Keywords: borrower rights; foreclosure; policy evaluation
JEL Codes: G11; K11; R31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| right-to-cure law implementation (I18) | foreclosure timeline lengthening (G33) |
| right-to-cure law implementation (I18) | borrower outcomes improvement (G51) |
| judicial permission to foreclose (K35) | foreclosure process delays (G33) |
| judicial states (K40) | borrower outcomes compared to power-of-sale states (G51) |
| judicial intervention (K41) | immediate foreclosure rates reduction (G21) |
| judicial intervention (K41) | persistently delinquent borrowers increase (G51) |