Factors underlying short sales

Zhu, Shuang; Pace, R. Kelley

doi:10.1016/j.jhe.2015.02.001

Cited by 10 publications

(4 citation statements)

References 14 publications

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“…The second important distinction of our study from the prior literature is our examination of modifications, which as an alternative way to resolve seriously delinquent subprime mortgages have yet to be thoroughly investigated in the prior literature on subprime mortgages. The earlier studies such as Capozza and Thomson (2006), Pennington‐Cross (2010), do not include modifications as an exit type as modifications were almost non‐existent before 2005, and a recent study by Zhu and Pace (2015) only investigate short sales as the exit type. Gerardi et al (2013) only examine modifications up to 18 months after loans turn 90 DPD.…”

Section: State Foreclosure Laws and Literature Reviewmentioning

confidence: 99%

Does judicial foreclosure procedure help delinquent subprime mortgage borrowers?

Ding

Tian

et al. 2022

J Empirical Legal Studies

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We conduct comprehensive analyses on whether and how the judicial foreclosure procedure helps subprime mortgage borrowers to reinstate their delinquent loans outside foreclosure liquidation. Even though the transition rates of various exit types are all higher in non-judicial states, we argue such higher rates can be mechanically driven by the faster shrinking pool of delinquent mortgages in non-judicial states over time. Based on the cumulative proportions of various exit types during a period of up to 5 years post the mortgage first become 90 days past due, we find that judicial states offer more opportunities for delinquent borrowers to reinstate their loans outside foreclosure liquidation, especially during a housing market downturn. Cures, modifications, and paid-offs were all important alternative ways to resolve serious delinquencies during 2007-2008. After modifications became widely available in 2009, loan modifications became the most important alternative for subprime borrowers to reinstate their delinquent mortgages outside foreclosure liquidation. The lion's share of the judicial foreclosure benefit shows up after the start of the foreclosure process.

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Section: State Foreclosure Laws and Literature Reviewmentioning

confidence: 99%

Does judicial foreclosure procedure help delinquent subprime mortgage borrowers?

Ding

Tian

et al. 2022

J Empirical Legal Studies

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“…5 Distressed sales usually include foreclosures and short sales. A short sale means that the borrower sells the property for less than the outstanding mortgage balance under an agreement with the lender, and pays the proceeds to the lender (Zhu and Pace, 2015). I define foreclosures as transactions categorized by DataQuick as financial institution-owned sales (REO) or foreclosure auctions, and short sales as transactions inferred as short sales by DataQuick.…”

Section: Loan Loss Provisioning and Economic Downturnsmentioning

confidence: 99%

Delays in Banks’ Loan Loss Provisioning and Economic Downturns: Evidence from the U.S. Housing Market

Kim

2021

J of Accounting Research

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I study whether banks’ loan loss provisioning contributes to economic downturns, by examining the U.S. housing market. Specifically, I examine the aggregate effects of banks’ delayed loan loss recognition (DLR) on house prices during the Great Recession and the channels through which these potential effects arose. I construct ZIP‐code‐level exposure to banks’ DLR before the crisis and compare high‐ and low‐exposure ZIP codes during the crisis to examine the aggregate effects of banks’ DLR on the housing market. I find that high‐exposure ZIP codes experienced larger decreases in mortgage supply, larger increases in distressed sales, and larger decreases in house prices during the crisis. In addition, I conduct individual bank‐level analyses and find that high‐DLR banks reduced their mortgage supply more than low‐DLR banks, and mortgages issued by high‐DLR banks were more likely to become distressed during the crisis. Taken together, these findings suggest that banks’ DLR was associated with nontrivial effects on the housing market during the Great Recession, and the effects of DLR on house prices were likely driven by both the credit‐crunch and distressed‐sales channels.

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“…Meanwhile, research on the causes of short sales is even more scant. Zhu and Pace (2015) is the only paper to document the factors that influence the probability of a short sale, but they cannot identify the channel driving this effect. 10 Also, their data are restricted to only mortgages in cross-state MSAs, which is problematic and produces results that cannot be generalized.…”

Section: Related Literaturementioning

confidence: 99%

A Shortage of Short Sales: Explaining the Underutilization of a Foreclosure Alternative

Zhang

2019

Working Paper (Federal Reserve Bank of Philadelphia)

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The Great Recession led to widespread mortgage defaults, with borrowers resorting to both foreclosures and short sales to resolve their defaults. I first quantify the economic impact of foreclosures relative to short sales by comparing the home price implications of both. After accounting for omitted variable bias, I find that homes selling as short sales transact at 9.2% to 10.5% higher prices on average than those that sell after foreclosure. Short sales also exert smaller negative externalities than foreclosures, with one short sale decreasing nearby property values by 1 percentage point less than a foreclosure. So why weren't short sales more prevalent? These home price benefits did not increase the prevalence of short sales because free rents during foreclosures caused more borrowers to select foreclosures, even though higher advances led servicers to prefer more short sales. In states with longer foreclosure timelines, the benefits from foreclosures increased for borrowers, so short sales were less utilized. I find that one standard deviation increase in the average length of the foreclosure process decreased the short sale share by 0.35 to 0.45 standard deviation. My results suggest that policies that increase the relative attractiveness of short sales could help stabilize distressed housing markets.

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Factors underlying short sales

Cited by 10 publications

References 14 publications

Does judicial foreclosure procedure help delinquent subprime mortgage borrowers?

Does judicial foreclosure procedure help delinquent subprime mortgage borrowers?

Delays in Banks’ Loan Loss Provisioning and Economic Downturns: Evidence from the U.S. Housing Market

A Shortage of Short Sales: Explaining the Underutilization of a Foreclosure Alternative

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