HTaufReisen
Level 2 Member
http://www.clevelandfed.org/research/workpaper/2014/wp1423.pdf
Executive Summary ;-)
This paper debunks the common perception that “foreclosure will ruin your credit
score.” Using individual-level data from a credit bureau matched with loan-level
mortgage data, it is estimated that the very first missed mortgage payment leads to
the biggest reduction in credit scores. The effects of subsequent loan impairments
are increasingly muted. Post-delinquency foreclosures have only a minimal
effect on credit scores. Moreover, credit scores improve substantially a year after
borrowers experience 90-day delinquency or foreclosure. The data supports one
possible explanation of this improvement: the absence of mortgage payments
relaxes the borrowers’ budget constraint, allowing them to restore other forms of
credit.
Executive Summary ;-)
This paper debunks the common perception that “foreclosure will ruin your credit
score.” Using individual-level data from a credit bureau matched with loan-level
mortgage data, it is estimated that the very first missed mortgage payment leads to
the biggest reduction in credit scores. The effects of subsequent loan impairments
are increasingly muted. Post-delinquency foreclosures have only a minimal
effect on credit scores. Moreover, credit scores improve substantially a year after
borrowers experience 90-day delinquency or foreclosure. The data supports one
possible explanation of this improvement: the absence of mortgage payments
relaxes the borrowers’ budget constraint, allowing them to restore other forms of
credit.