Interventions in Mortgage Default: Policies and Practices to Prevent Home Loss and Lower Costs

UCC08-15: We find that the foreclosure process varies widely across states and that the costs associated with foreclosure rise significantly with the length of the foreclosure timeline. Most importantly, we find that the likelihood a borrower will reinstate her loan out of foreclosure falls as the length of time in the foreclosure process increases – by our estimates, states with excessively long foreclosure timelines could increase the probability of successful reinstatement by 3 to 9 percentage points by shortening their statutory timelines to match the national median timeline. Timelines that give the borrowers too much time in the legal foreclosure process tip the balance from the threat of imminent home loss from foreclosure towards the benefit of “free” rent for the duration of the process, providing an incentive for borrowers to forego reinstatement of the loan even if they have the means to do so. By the same reasoning, some very short timeline states may find that lengthening their legal foreclosure timelines may improve cure rates out of foreclosure…