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Are Foreclosures Contagious?

SSRN Electronic Journal
2011
  • 13
    Citations
  • 4,691
    Usage
  • 7
    Captures
  • 0
    Mentions
  • 0
    Social Media
Metric Options:   Counts1 Year3 Year

Metrics Details

  • Citations
    13
    • Citation Indexes
      12
    • Policy Citations
      1
      • 1
  • Usage
    4,691
  • Captures
    7
  • Ratings
    • Download Rank
      1,630,174

Article Description

Using a large sample of U.S. mortgages observed over the 2005-2009 period, we find that foreclosures are contagious. After controlling for major factors known to influence a borrower’s decision to default, including borrower and loan characteristics, local demographic and economic conditions, and changes in property values, the likelihood of a mortgage default increases by as much as 24% with a one standard deviation increase in the foreclosure rate of the borrower’s surrounding zip code. We find that foreclosure contagion is most prevalent among strategic defaulters: borrowers who are underwater on their mortgage but are not likely to be financially distressed. Taken together, the evidence supports the notion that foreclosures are contagious.

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