Working Paper

The cost of delay

Abstract: In this study, we make use of a massive database of mortgage defaults to estimate REO liquidation timelines and time-related costs resulting from the recent post-crisis interventions in the mortgage market and the freezing of foreclosures due to ?robo-signing? revelations. The cost of delay, estimated by comparing today?s time-related costs to those before the start of the financial crisis, is eight percentage points, with enormous variation among states. While costs are estimated to be four percentage points higher in statutory foreclosure states, they are estimated to be 13 percentage points higher in judicial foreclosure states and 19 percentage points higher in the highest-cost state, New York. We discuss the policy implications of these extraordinary increases in time-related costs, including recent actions by the GSEs to raise their guarantee fees 15-30 basis points in five high-cost judicial states. Combined with evidence that foreclosure delays do not improve outcomes for borrowers and that increased delays can have large negative externalities in neighborhoods, the weight of the evidence is that current foreclosure practices merit the urgent attention of policymakers.

Keywords: Mortgages; Foreclosure;

Bibliographic Information

Provider: Federal Reserve Bank of Philadelphia

Part of Series: Working Papers

Publication Date: 2013

Number: 13-15