Do Borrower Rights Improve Borrower Outcomes? Evidence from the Foreclosure Process

Public Policy Discussion Paper No. 11-9
by Kristopher Gerardi, Lauren Lambie‐Hanson, and Paul S. Willen

The authors evaluate laws designed to protect borrowers from foreclosure. They find that these laws delay but do not prevent foreclosures. They first compare states that require lenders to seek judicial permission to foreclose with states that do not. Borrowers in judicial states are no more likely to cure and no more likely to renegotiate their loans, but the delays lead to a buildup in these states of persistently delinquent borrowers, the vast majority of whom eventually lose their homes. They next analyze a "right‐to‐cure" law instituted in Massachusetts on May 1, 2008. Using a difference‐in‐differences approach to evaluate the effect of the policy, they compare Massachusetts with neighboring states that did not adopt similar laws. They find that the right‐to‐cure law lengthens the foreclosure timeline but does not lead to better outcomes for borrowers.

JEL classification codes: G21, K11, R31

Keywords: foreclosure, mortgage, judicial, power of sale, right to cure

Full-text paper pdf

Stay Connected

contacts email alert Twitter RSS podcasts careers faqs videos

Public Policy Discussion Papers Links