What Happens to Borrowers After Foreclosure?

The after-effects following a foreclosure to a borrower may not be as bad as once thought, according to a new paper by Fed economists. With the wave of foreclosures plaguing the nation, Fed economists sought to find out what happens to households following a foreclosure.

Overall, the study found that post-foreclosure borrowers don’t fare too bad: The majority of these borrowers do not end up in “substantially less desirable neighborhoods or more crowded living conditions.” Also, the study found that from 2006 to 2008, 22 percent of post-foreclosure borrowers moved to a multifamily rental building, while about 75 percent still lived in a single-family structure. What’s more, the places where they moved were not found to have significantly lower median income, median house value, or median rent than their old neighborhood.

“These results suggest that, on average, foreclosure does not impose an economic burden large enough to severely reduce housing consumption,” according to the report.

Source: “Foreclosure Effects Found Not So Bad,” National Mortgage News (July 26, 2011