Skip to main content

Main menu

  • Home
  • Current Issue
  • Past Issues
  • Videos
  • Submit an article
  • More
    • About JSF
    • Editorial Board
    • Published Ahead of Print (PAP)
  • IPR Logo
  • About Us
  • Journals
  • Publish
  • Advertise
  • Videos
  • Webinars
  • More
    • Awards
    • Article Licensing
    • Academic Use
  • Follow IIJ on LinkedIn
  • Follow IIJ on Twitter

User menu

  • Sample our Content
  • Request a demo
  • Log in

Search

  • ADVANCED SEARCH: Discover more content by journal, author or time frame
The Journal of Structured Finance
  • IPR Logo
  • About Us
  • Journals
  • Publish
  • Advertise
  • Videos
  • Webinars
  • More
    • Awards
    • Article Licensing
    • Academic Use
  • Sample our Content
  • Request a demo
  • Log in
The Journal of Structured Finance

The Journal of Structured Finance

ADVANCED SEARCH: Discover more content by journal, author or time frame

  • Home
  • Current Issue
  • Past Issues
  • Videos
  • Submit an article
  • More
    • About JSF
    • Editorial Board
    • Published Ahead of Print (PAP)
  • Follow IIJ on LinkedIn
  • Follow IIJ on Twitter

Foreclosures and Their Costs: Could They Have Been Avoided? The Case of California during the Mortgage Crisis

Mejda Bahlous-Boldi
The Journal of Structured Finance Summer 2020, jsf.2020.1.102; DOI: https://doi.org/10.3905/jsf.2020.1.102
Mejda Bahlous-Boldi
is an associate professor of finance at RIT (Dubai Campus) in Dubai, United Arab Emirates
  • Find this author on Google Scholar
  • Find this author on PubMed
  • Search for this author on this site
  • Article
  • Info & Metrics
  • PDF (Subscribers Only)
Loading

Click to login and read the full article.

Don’t have access? Click here to request a demo 
Alternatively, Call a member of the team to discuss membership options
US and Overseas: +1 646-931-9045
UK: 0207 139 1600

Abstract

The author analyzes a loan-level dataset of 1,528 defaults in California that led to sale of the property as “Real Estate Owned” during the period 2005 to 2017. In 898 cases (59%), lenders lost 43% of the initial loan ($89,877) on average per foreclosure. In 942 cases (62%), borrowers lost 30% of the initial price of their home ($147,077) on average. The borrowers who ended up with a profit were those who increased their debt the most after the first purchase loan. Moreover, one in four borrowers generated an average profit of $115,856, while their lenders incurred an average loss of $93,114 precisely because excessive equity extraction transfered the downside risk to the lender. Two-thirds of all ARM borrowers defaulted within the first 3 years of the loan, implying underqualified borrowers at origination. This is an indication of predatory lending/borrowing practices that fueled the wave of foreclosures. The author finds that foreclosure discounts on REO sales in California were on average 35%, with the highest discount appearing in 2009. Measures that prevent or limit cash-outs during a housing boom, and incentives to default during a housing bust, could help reduce foreclosures and their costs.

TOPICS: MBS and residential mortgage loans, legal and regulatory issues for structured finance, financial crises and financial market history

Key Findings

  • • An analysis of 1,528 foreclosures in California shows that lenders lost $89,877 and borrowers lost $147,027 on average per foreclosure during the 2008 mortgage crisis. One in four defaulting borrowers generated a profit while their lenders incurred a loss due to excessive equity extraction.

  • • ARM borrowers defaulted within the first 3 years of the loan, indicating that these borrowers were underqualified at origination. FRM borrowers defaulted later but used cash-outs more aggressively, leading to negative equity that motivated defaults during the crisis.

  • • Foreclosure discounts were on average 35% in California, with the worst discount occurring in 2009. Despite the volatility of HPI, every period of 12 years or longer since 1975, led to price appreciation, indicating that foreclosure should be avoided, as the recovery of the market always leads to capital gains.

  • © 2020 Pageant Media Ltd
View Full Text

Don’t have access? Click here to request a demo

Alternatively, Call a member of the team to discuss membership options

US and Overseas: +1 646-931-9045

UK: 0207 139 1600

Log in using your username and password

Forgot your user name or password?
Next
Back to top

Explore our content to discover more relevant research

  • By topic
  • Across journals
  • From the experts
  • Monthly highlights
  • Special collections

In this issue

The Journal of Structured Finance: 26 (4)
The Journal of Structured Finance
Vol. 26, Issue 4
Winter 2021
  • Table of Contents
  • Index by author
  • Complete Issue (PDF)
Print
Download PDF
Article Alerts
Sign In to Email Alerts with your Email Address
Email Article

Thank you for your interest in spreading the word on The Journal of Structured Finance.

NOTE: We only request your email address so that the person you are recommending the page to knows that you wanted them to see it, and that it is not junk mail. We do not capture any email address.

Enter multiple addresses on separate lines or separate them with commas.
Foreclosures and Their Costs: Could They Have Been Avoided? The Case of California during the Mortgage Crisis
(Your Name) has sent you a message from The Journal of Structured Finance
(Your Name) thought you would like to see the The Journal of Structured Finance web site.
CAPTCHA
This question is for testing whether or not you are a human visitor and to prevent automated spam submissions.
Citation Tools
Foreclosures and Their Costs: Could They Have Been Avoided? The Case of California during the Mortgage Crisis
Mejda Bahlous-Boldi
The Journal of Structured Finance Jun 2020, jsf.2020.1.102; DOI: 10.3905/jsf.2020.1.102

Citation Manager Formats

  • BibTeX
  • Bookends
  • EasyBib
  • EndNote (tagged)
  • EndNote 8 (xml)
  • Medlars
  • Mendeley
  • Papers
  • RefWorks Tagged
  • Ref Manager
  • RIS
  • Zotero
Save To My Folders
Share
Foreclosures and Their Costs: Could They Have Been Avoided? The Case of California during the Mortgage Crisis
Mejda Bahlous-Boldi
The Journal of Structured Finance Jun 2020, jsf.2020.1.102; DOI: 10.3905/jsf.2020.1.102
del.icio.us logo Digg logo Reddit logo Twitter logo CiteULike logo Facebook logo Google logo LinkedIn logo Mendeley logo
Tweet Widget Facebook Like LinkedIn logo

Jump to section

  • Article
    • Abstract
    • LITERATURE REVIEW
    • FORECLOSURE COSTS: THE CASE OF SOUTHERN CALIFORNIA DURING THE MORTGAGE CRISIS
    • WINNERS AND LOSERS FROM MORTGAGE DEFAULTS: THE BOOMERANG EFFECT OF PREDATORY LENDING
    • FORECLOSURES LEAD TO SUBSTANTIAL DISCOUNTS DURING CRISIS PERIODS
    • THE COSTS OF FORECLOSURES: COULD THEY HAVE BEEN AVOIDED?
    • CONCLUSION
    • ACKNOWLEDGMENTS
    • ADDITIONAL READING
    • ENDNOTE
    • REFERENCES
  • Info & Metrics
  • PDF (Subscribers Only)
  • PDF (Subscribers Only)

Similar Articles

Cited By...

  • No citing articles found.
  • Google Scholar
LONDON
One London Wall, London, EC2Y 5EA
United Kingdom
+44 207 139 1600
 
NEW YORK
41 Madison Avenue, New York, NY 10010
USA
+1 646 931 9045
pm-research@pageantmedia.com
 

Stay Connected

  • Follow IIJ on LinkedIn
  • Follow IIJ on Twitter

MORE FROM PMR

  • Home
  • Awards
  • Investment Guides
  • Videos
  • About PMR

INFORMATION FOR

  • Academics
  • Agents
  • Authors
  • Content Usage Terms

GET INVOLVED

  • Advertise
  • Publish
  • Article Licensing
  • Contact Us
  • Subscribe Now
  • Log In
  • Update your profile
  • Give us your feedback

© 2021 Pageant Media Ltd | All Rights Reserved | ISSN: 1551-9783 | E-ISSN: 2374-1325

  • Site Map
  • Terms & Conditions
  • Cookies
  • Privacy Policy