Bank of Lithuania

Mortgage foreclosure risk after the Great Recession


The objective of increased regulation of mortgage origination activities after the Great Recession was to prevent another foreclosure crisis in the future. However, the literature is not conclusive about the actual effect of these policy changes. By using the 2007-09 panel and subsequent waves of the Survey of Consumer Finances (SCF), we predict foreclosure risk based on individual borrower characteristics. We show that the median mortgage foreclosure probability kept decreasing after 2010, but in 2016 it was still higher relative to the year 2007. The median foreclosure probability has remained high among both non-bank borrowers and bank borrowers. The regulatory changes started in 2010, so we also compare predicted foreclosure probabilities to the levels in 2010 and find that, despite the fact that banks were affected by this regulation more than non-banks, predicted foreclosure probabilities for bank mortgages declined slower than for non-bank mortgages. Our findings offer support for a thorough analysis of the regulatory effects because they might have been weaker than expected or worked in an unexpected way.

JEL Codes: C53, G21, G23.

The views expressed are those of the author(s) and do not necessarily represent those of the Bank of Lithuania.

Residential mortgages, Foreclosure, Non-banks Lending