Assessing the Role of Mortgage Fraud, Confluence, and Spillover in the Contemporary Foreclosure Crisis

This study explores three features of the contemporary foreclosure crisis that have been highlighted in the literature but relatively neglected in existing empirical research. First, the study evaluates the capacity for levels of mortgage fraud to serve as a potentially important leading indicator of significant foreclosure activity. Second, the study examines the possibility that high foreclosure rates may exhibit spatial dependence, affecting the foreclosure realities of surrounding areas in ways similar to how they have been shown to influence housing prices. Finally, the research considers whether key factors emphasized in scholarly and policy discussions interacted to produce particularly high rates of foreclosure in some areas of the United States. The findings indicate that foreclosure rates in 2008 were significantly higher in United States. counties where “profit-motivated” mortgage fraud was more prevalent several years earlier (i.e., 2004--2006). This study also reveals that, net of a wide variety of other factors, high rates of foreclosure can adversely affect nearby counties by elevating their foreclosure rates. Overall, spatial variation in foreclosure rates appears to be due to additive effects of selected factors rather than interactions of those factors, although the study does show that affordable housing can lessen the tendency for high levels of subprime lending to translate into high foreclosure rates.