Cost-benefit analysis of single-family foreclosure alternatives

Brent W. Ambrose, Charles A. Capone

Research output: Contribution to journalArticle

46 Scopus citations

Abstract

Over the last ten years, single-family mortgage lenders have become more aware of the financial benefits of finding alternatives to foreclosure for borrowers who default on their mortgage obligations. In this article, expected costs of foreclosure alternatives are parameterized to solve for minimum probabilities of borrower success necessary to make pursuing them profitable for lenders. These break-even probabilities are found to be very insensitive to changes in a variety of factors, including interest-rate environments and time horizons. Simulations are performed across house-price-deflation scenarios, loan-to-value ratios, and post-default cure rates. Stochastic processes are introduced through time distributions for foreclosure processing, property disposition, and house-price appreciation.

Original languageEnglish (US)
Pages (from-to)105-120
Number of pages16
JournalJournal of Real Estate Finance and Economics
Volume13
Issue number2
DOIs
StatePublished - Jan 1 1996

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics
  • Urban Studies

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