A study on the distribution of the foreclosure lag, its expected capital opportunity cost and its analyses

This paper presents models that help lenders to calculate the foreclosure lag and its expected capital opportunity cost. The empirical results show the foreclosure lag fits well with the exponential distribution after linear transformation. The value of the expected capital opportunity cost is nearly twice the mortgage rate. In addition, the economic situations, loan characteristic, and state foreclosure policies significantly influence the foreclosure lag. The extra foreclosure lag tends to be longer in judicial foreclosure states than in states with a redemption policy. Moreover, new U.S. foreclosure laws, enacted after 2008, effectively shorten the foreclosure lag and decrease its volatilities.