Abstract
This paper examines the impact of state laws on foreclosure starts using mortgage, borrower, and economic data at the state level. Several models are studied to capture the impact of state-specific foreclosure laws and statutes, i.e. loss mitigation requirement before foreclosure, right to cure, and right to reinstate before sale. Data sources include Mortgage Bankers Association, Home Mortgage Disclosure Act, US Census, National Consumer Law Center-Survey of State Foreclosure Laws, and Experian. The study shows that statewide pre- and post-sale foreclosure-prevention statutes impact foreclosure starts. The results indicate statutory programs involving housing emergency assistance funds statistically slow foreclosure starts.
Highlights
The Mortgage Bankers Association (MBA, 2014) chief economist notes major improvement in mortgage market performance, which is directly related to a strong job market, tighter credit standards, lower delinquency rates and increasing home prices
The pre-sale foreclosure protection statutes included in our analysis are Access to Court Review (ARC), Loss Mitigation Requirement before Foreclosure (LMRF), Right to Cure Before Acceleration (RCBA), Right to Reinstate Before Sale (RRBS), Personal Service Requirement for Complaint or Sale Notice (PSRCSN), and Housing Emergency Assistance Fund (HEAF)
We organized our models by foreclosure starts by all, prime and subprime loans and isolated the impact of preand post-sale foreclosure protection statutes on foreclosure starts
Summary
The Mortgage Bankers Association (MBA, 2014) chief economist notes major improvement in mortgage market performance, which is directly related to a strong job market, tighter credit standards, lower delinquency rates and increasing home prices. The rate of new foreclosure starts, which captures the flow of loans that enter the foreclosure process, is at 0.45 percent, which matches the long-run average. As an example, during first quarter of 2014, four states had an increase in the rate of new foreclosures started, and one state had an increase in loans in foreclosure. New Jersey, a state with a judicial foreclosure system, was the only state in the nation to see an increase in loans in foreclosure over the previous quarter and has the highest percentage of loans in foreclosure in the nation with eight percent of its loans in the foreclosure process. This paper examines the impact of state foreclosure statutes on the rate of foreclosure starts for 50 states and the District of Columbia by introducing variables for pre- and post-sale protection statues into regression models for state foreclosure rates
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