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posted on 02 January 2017

Have Borrowers Recovered From Foreclosures During The Great Recession?

from the Chicago Fed

-- this post authored by Sharada Dharmasankar and Bhashkar Mazumder

As a result of the severe decline in the housing market and the financial crisis during the last economic downturn, many Americans were unable to make mortgage payments and subsequently lost their homes to foreclosure. We estimate that between 2007 and 2010, there were approximately 3.8 million foreclosures.

Now, nine years after the onset of the housing bust, we think it is worthwhile to assess the financial health of the individuals whose homes were foreclosed on during this period. Have they regained their financial footing, or are they permanently scarred? How different were their experiences compared with those of borrowers whose homes were lost to foreclosure in the years before the Great Recession? Did their experiences differ by their financial success (as reflected in their credit scores) before the Great Recession? And how likely are they to have undertaken a new mortgage?

In this Chicago Fed Letter, we address these questions by using data on a large sample of individuals who experienced a home foreclosure after 2000, with a focus on those who entered foreclosure between 2007 and 2010. We use credit bureau data through 2016 from the Federal Reserve Bank of New York Consumer Credit Panel/Equifax (CCP) database. We build on prior work by Brevoort and Cooper, who also used the CCP database but whose analysis ended with 2010 data.

Their study showed that prime borrowers (i.e., borrowers with credit scores 660 and above3) who had experienced a home foreclosure during the Great Recession were especially hard hit and that their rate of recovery was significantly slower relative to such borrowers who had experienced a home foreclosure earlier in the decade. We extend Brevoort and Cooper’s analysis through the second quarter of 2016 in order to examine how these patterns evolved over the subsequent years of the economic expansion. Specifically, we examine the entire trajectories of credit scores and credit delinquencies starting from the years before a foreclosure event and also extending many years after foreclosure. We also examine whether borrowers obtained a new mortgage in the years after foreclosure.

[click on image below to continue reading]

Source: http://app.frbcommunications.org/e/er? s=1064 &lid=4421 &elqTrackId=a4d3aebe25cb42f7bbc6b9299cd57884 &elq=951703f12a28465a8ca2fb5cdf38e44f &elqaid=11209&elqat=1

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