The Rising Long-Term Trend of Single-Family Mortgage Foreclosure Rates*

This paper identifies and analyzes the long-term rising trend in single-family mortgage foreclosure rates. Traditional measures of mortgage risk, such as house appreciation rates and loan-to-value ratios (LTVs), appear to explain some, but not all, of the long-term trend. In an effort to explain the remaining part of the trend, several non-traditional hypotheses are explored. One is the notion that the incidence of shocks to individual lifestyles or “trigger events,” such as divorce, have increased, thereby increasing the likelihood of mortgage default. The second is that the risk posture of individuals has increased, especially as individuals increasingly leverage their homes as part of a broader strategy of managing their overall wealth portfolio. The third is the possibility that structural changes in servicing, arising from the trend toward securitization, have increased foreclosure rates. While evidence exists supporting these hypotheses, the risk posture hypothesis appears more consistent with a variety of disparate incentives and trends relating to household financial management.