Pathways After Default: What Happens to Distressed Mortgage Borrowers and Their Homes?

We use a detailed dataset of seriously delinquent mortgages to examine the dynamic process of mortgage default-from initial delinquency and default to final resolution of the loan and disposition of the property. We estimate a two-stage competing risk hazard model to assess the factors associated with post-default outcomes, including whether a borrower receives a legal notice of foreclosure. In particular, we focus on a borrower's ability to avoid a foreclosure auction by getting a modification, by refinancing the loan, or by selling the property. We find that the outcomes of the foreclosure process are significantly related to: loan characteristics including the borrower's credit history, current loan-to-value and the presence of a junior lien; the borrower's post-default payment behavior, including the borrower's participation in foreclosure counseling; neighborhood characteristics such as foreclosure rates, recent house price depreciation and median income; and the borrower's race and ethnicity.