Working Paper: NBER ID: w21532
Authors: Kyle F. Herkenhoff; Lee E. Ohanian
Abstract: This paper documents that the time required to initiate and complete a home foreclosure rose from about 9 months on average prior to the Great Recession to an average of 15 months during the Great Recession and afterward. We refer to these changes as foreclosure delay. We also document that many borrowers who are in foreclosure ultimately exit foreclosure and keep their homes by making up for missed mortgage payments. We analyze the impact of foreclosure delay on the U.S. labor market as an implicit credit line from a lender to a borrower (mortgagor) within a search model. In the model, foreclosure delay provides unemployed mortgagors with additional time to search for a high-paying job. We find that foreclosure delay decreases mortgagor employment by about 0.75 percentage points, nearly doubles the stock of delinquent mortgages, increases the rate of homeownership by about 0.3 percentage points, and increases job match quality, as mortgagors search longer. Severe foreclosure delays, such as those observed in Florida and New Jersey, can depress mortgagor employment by up to 1.3 percentage points. The model results are consistent with PSID and SCF data that show that employment rates rise for delinquent mortgagors once the mortgagor is in the foreclosure process.
Keywords: foreclosure; employment; labor market; mortgages
JEL Codes: E24; J0; R3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| foreclosure delay (G33) | additional time to search for high-paying jobs (J68) |
| additional time to search for high-paying jobs (J68) | improved job match quality (J68) |
| foreclosure delay (G33) | mortgagor employment (G51) |
| foreclosure delay (G33) | stock of delinquent mortgages (G21) |
| foreclosure delay (G33) | homeownership rates (R21) |
| time in labor market (J29) | job match quality (L15) |
| time in labor market (J29) | average wages (J31) |