Foreclosure Delay and the U.S. Labor Market
Kyle F. Herkenhoff, Visiting Scholar
Lee E. Ohanian, Consultant
May 2016 | Federal Reserve Bank of Minneapolis Economic Policy Paper 16-7
The time required to complete a home foreclosure rose substantially during the Great Recession, due both to lender bottlenecks in processing foreclosures and to government policies intended to slow the foreclosure process. This paper shows that foreclosure delay had the unintentional benefit of giving unemployed homeowners additional time to search for high-paying jobs.
Our economic model analyzes foreclosure delay as equivalent to extending additional credit to unemployed homeowners that is paid back if the homeowners find jobs and fulfill their delinquent mortgage obligations before foreclosure is completed. Model simulations estimate that foreclosure delay during the recession improved the quality of new employment matches, raised national income by about 0.3 percent and increased homeownership by about 800,000 units.