Foreclosure Delay and Consumer Credit Performance

A previous version of this working paper was originally published in July 2015. Supersedes Working Paper 14-8 — Foreclosure Delay and Consumer Credit Performance.

The average length of time from the onset of delinquency through the end of the foreclosure process also expanded dramatically. Although most individuals undergoing foreclosure were experiencing serious financial stress, the extended foreclosure timelines enabled them to live in their homes without making mortgage payments until the end of the foreclosure process, thus providing temporary income and liquidity benefits from lower housing costs. This paper investigates the impact of extended foreclosure timelines on borrower performance with credit card debt. Our results indicate that a longer period of nonpayment of mortgage expenses results in higher cure rates on delinquent credit cards and reduced credit card balances. Thus, foreclosure process delays may have mitigated the impact of the economic downturn on credit card default, suggesting that improvement in credit card performance during the postcrisis period would likely be slowed by the removal of the temporary liquidity benefits as foreclosures reach completion.