Who Defaults? Who Goes into Foreclosure?

• Who Defaults on their Home Mortgage?
• Who Enters the Foreclosure Process?
• our presentation

Since February 2010, detailed information on every home mortgage default and foreclosure in New York State must be filed with the New York State Banking Department (NYSBD).

Pairing the NYSBD's data with data on originations from the Home Mortgage Disclosure Act (HMDA) enables us to compare borrowers who defaulted to those who did not. The NYSBD's pre-foreclosure filing data itself enables us to compare loans that progressed from default to a lis pendens filing (i.e. the first step in the foreclosure process).

Combined, the two datasets enable us to track the universe of home mortgages (in New York State) from origination to default to foreclosure.

Like many previous studies, we find strong racial and ethnic disparities in lending practices, but we do not find conclusive evidence that HMDA-measurable forms of discrimination increased a borrower's probability of default.

Our analysis suggests that reducing principal loan balances may help borrowers avoid default and foreclosure. It also suggests that the HAMP loan modification program may have been more successful than its critics have argued.

Reducing principal balances may help borrowers avoid default and foreclosure, but such a remedy for the foreclosure crisis may be impractical because lenders would have to weigh the benefits of lower foreclosure costs (e.g. legal fees, loss of property value, etc.) to the cost of writing off a portion of the loan.

However, it may be possible to construct well-structured modifications that reduce the industry's losses and keep borrowers in their homes, so in future work we will attempt to quantify the costs and benefits of reducing principal balances and attempt to find mutually beneficial options for lenders and homeowners.