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Staring Down Foreclosure: Findings from a Sample of Homeowners Seeking Assistance

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  • Neelakantan, Urvi
  • Zeuli, Kimberly A.
  • McKay, Shannon
  • Lazaryan, Nika

Abstract

This paper offers a simple theoretical and empirical exploration of homeowner assistance programs. We model seeking and receiving assistance as strategic interaction between the homeowner and lender. In the absence of lender and homeowner incentives, the theory predicts that with full information, the lender’s optimal action would be to offer assistance only to those who would not redefault or self-cure. In this case, assistance enables homeowners who would otherwise have been foreclosed on to remain in their homes, i.e., to be cured. We show that the introduction of incentives into the model can, under certain conditions, induce lenders to offer assistance to homeowners who subsequently redefault. We construct logit models based on the predictions of our theory to more fully evaluate the probability of being cured. We find that assistance, loan-to-value ratios and negative shocks significantly affect the probability of being cured.

Suggested Citation

  • Neelakantan, Urvi & Zeuli, Kimberly A. & McKay, Shannon & Lazaryan, Nika, 2012. "Staring Down Foreclosure: Findings from a Sample of Homeowners Seeking Assistance," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124831, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea12:124831
    DOI: 10.22004/ag.econ.124831
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    References listed on IDEAS

    as
    1. Foote, Christopher L. & Gerardi, Kristopher & Willen, Paul S., 2008. "Negative equity and foreclosure: Theory and evidence," Journal of Urban Economics, Elsevier, vol. 64(2), pages 234-245, September.
    2. John Y. Campbell & João F. Cocco, 2015. "A Model of Mortgage Default," Journal of Finance, American Finance Association, vol. 70(4), pages 1495-1554, August.
    3. Adelino, Manuel & Gerardi, Kristopher & Willen, Paul S., 2013. "Why don't Lenders renegotiate more home mortgages? Redefaults, self-cures and securitization," Journal of Monetary Economics, Elsevier, vol. 60(7), pages 835-853.
    4. Ko Wang & Leslie Young & Yuqing Zhou, 2002. "Nondiscriminating Foreclosure and Voluntary Liquidating Costs," The Review of Financial Studies, Society for Financial Studies, vol. 15(3), pages 959-985.
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    Keywords

    Consumer/Household Economics;

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