Foreclosure's Wake: The Credit Experiences of Individuals Following Foreclosure

46 Pages Posted: 23 Oct 2010

See all articles by Kenneth P. Brevoort

Kenneth P. Brevoort

Board of Governors of the Federal Reserve System

Cheryl R. Cooper

Consumer Financial Protection Bureau

Multiple version iconThere are 2 versions of this paper

Date Written: October 12, 2010

Abstract

While a substantial literature has examined the causes of mortgage foreclosure, there has been relatively little work on the consequences of foreclosure for the borrowers themselves. Using a large sample of anonymous credit bureau records, observed quarterly from 1999Q1 through 2010Q1, we examine the credit experiences of almost 350,000 borrowers before and after their mortgage foreclosure. Our analysis documents the substantial declines in credit scores than accompany foreclosure and examines the length of time it takes individuals to return their credit scores to pre-delinquency levels. The results suggest that, particularly for prime borrowers, credit score recovery comes slowly, if at all. This appears to be driven by persistently higher levels of delinquency on consumer credit (such as auto and credit card loans) in the years that follow foreclosure. Our results also indicate that the experiences of individuals whose mortgages entered foreclosure from 2007 to 2009 have followed a similar path to borrowers foreclosed earlier in the decade, though post-foreclosure delinquency rates for the recently foreclosed have been higher and, consequently, credit score recovery appears to be taking longer.

Keywords: credit scoring, foreclosure, consumer credit

JEL Classification: R20, D1G2

Suggested Citation

Brevoort, Kenneth and Cooper, Cheryl R., Foreclosure's Wake: The Credit Experiences of Individuals Following Foreclosure (October 12, 2010). Available at SSRN: https://ssrn.com/abstract=1696103 or http://dx.doi.org/10.2139/ssrn.1696103

Kenneth Brevoort (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Cheryl R. Cooper

Consumer Financial Protection Bureau ( email )

United States

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