Foreclosure Delay and Consumer Credit Performance - Working Paper No. 14-8 - March 9, 2014

Sep 16, 2026

The deep housing market recession from 2008 through 2010 drove a steep rise in foreclosures and significantly longer foreclosure timelines, reaching about three years in some states. Extended timelines can provide liquidity by allowing mortgage defaulters to remain in homes without making housing payments until foreclosure completion. This working paper tests whether that liquidity improves nonmortgage consumer credit outcomes, finding a significant link between longer timelines and better nonmortgage credit performance during and after foreclosure. Results imply higher cure rates and improved household balance sheets, with effects potentially shifting as the foreclosure backlog clears.

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Abstract

Background and Research Objectives

WORKING PAPER NO. 14-8 FORECLOSURE DELAY AND CONSUMER CREDIT PERFORMANCE Paul Calem Federal Reserve Bank of Philadelphia Julapa Jagtiani Federal Reserve Bank of Philadelphia William W. Lang Federal Reserve Bank of Philadelphia March 9, 2014 Foreclosure Delay and Consumer Credit Performance Paul Calem Federal Reserve Bank of Philadelphia Julapa Jagtiani Federal Reserve Bank of Philadelphia William W. Lang Federal Reserve Bank of Philadelphia March 9, 2014 Abstract The deep housing market recession from 2008 through 2010 was characterized by a steep increase in the number of foreclosures. Foreclosure timelines—the length of time between initial mortgage delinquency and completion of foreclosure—also expanded significantly, averaging up to three years in some states. Most individuals undergoing foreclosure are experiencing serious financial stress. However, extended foreclosure timelines enable mortgage defaulters to live in their homes without making housing payments until the completion of the foreclosure process, thus providing a liquidity benefit. This paper tests whether the resulting liquidity was used to help cure nonmortgage credit delinquency. The authors find a significant relationship between longer foreclosure timelines and household performance on nonmortgage consumer credit during and after the foreclosure process. Their results indicate that a longer period of nonpayment of housingrelated expenses results in higher cure rates on delinquent nonmortgage debts and improved household balance sheets. Foreclosure delay may have mitigated the impact of the economic downturn on credit card default. However, credit card performance may deteriorate in the future as the current foreclosure backlog is cleared and the affected households once again incur housing expenses. Keywords: Mortgage Default, Foreclosure, Foreclosure Delay, Credit Card Default, JEL Classification Codes: G28, G21, G02 The authors thank Ronel Elul, Leonard Nakamura, Robert Hunt, and Larry Cordell for their comments and suggestions and Avi Peled, Vidya Nayak, and Liang Geng for their data support. Special thanks to Ian Kotliar and Juanzi Li for their dedicated research assistance. Please direct correspondence to Julapa Jagtiani, Federal Reserve Bank of Philadelphia, Supervision, Regulation & Credit, Ten Independence Mall, Philadelphia, PA 19106; e-mail: [Julapa.Jagtiani@phil.frb.org](Julapa.Jagtiani@phil.frb.org. The opinions)[. The opinions](Julapa.Jagtiani@phil.frb.org. The opinions) in this paper are the authors’ opinions and not necessarily those of the Federal Reserve Bank of Philadelphia or the Federal Reserve System. This paper is [available free of charge at www.philadelphiafed.org/research-and-data/publications/working-papers/](available free of charge at www.philadelphiafed.org/research-and-data/publications/working-papers/) . I. Background and Research Objectives The deep housing market recession from 2008 through 2010 was characterized by a steep increase in the number of foreclosures. Foreclosure timelines—the length of time between initial mortgage delinquency and completion of foreclosure—also expanded significantly, averaging up to three years in some states. This paper investigates whether these lengthened foreclosure timelines provided liquidity to enable households to improve their payment performance on nonmortgage consumer debt. About 2.7 million and 2.3 million foreclosure filings were reported [for U.S. properties](for U.S. properties) in 2011 and 2012, respectively. Total foreclosure filings peaked around 2009; however, recent trends vary across states. 1 Figure 1 presents the number of homes in foreclosure from 2000 to 2012. In addition to the high number of foreclosures in recent years, the typical length of time between when a borrower becomes delinquent and when a foreclosure is completed has significantly increased. While mortgage delinquency rates have been declining since 2010, the num

FAQs

What is the main research question of the paper?

Whether longer foreclosure timelines provide liquidity that helps households improve their payment performance on nonmortgage consumer debt.

How does foreclosure delay relate to nonmortgage credit outcomes?

The authors find a significant relationship between longer foreclosure timelines and household performance on nonmortgage consumer credit during and after the foreclosure process, including higher cure rates for delinquent nonmortgage debts.

What are the potential implications for credit card performance over time?

Foreclosure delay may have mitigated credit card default impacts during the downturn, but credit card performance could deteriorate in the future once the foreclosure backlog is cleared and housing expenses resume.

Sep 16, 2026

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