Foreclosure Timelines and Mortgage Delinquency: More Evidence from Bankruptcy

At the end of a lively session yesterday at Duke Law School featuring Professor Stephen Ware of University of Kansas Law School, there was a brief discussion of whether shorter foreclosure timelines and clearer rules would promote more workouts of delinquent mortgages. The aforementioned paper about bankrupt homeowners suggests that the opposite might actually be the case: among homeowners in bankruptcy, longer foreclosure timelines in their home states were associated with a lower probability of foreclosure initiation while shorter timelines were associated with a higher probability of foreclosure initiation.

This finding comes with caveats about the models, the limits of the data, and the timing of data collection (early 2007). Yet, as is stated toward the end (p. 312), "Notwithstanding the limits of our models, these results are consistent with the view that state foreclosure laws that impose greater expense on lenders and servicers - as longer foreclosure timelines do - deter foreclosures and may encourage workouts." 

Although everyone in the sample ultimately filed for bankruptcy, those who entered the system caught up on their mortgages could focus on other debt problems for which bankruptcy offers more potent tools. This led the authors to note that "state foreclosure timelines may affect the quality and cost of debt relief achieved if they cannot avoid bankruptcy." (p. 312).