The Paradox of Judicial Foreclosure : Collateral Value Uncertainty and Mortgage Rates

Using a sample of 26,892 rate quotes on home purchase loan applications, the current paper investigates interstate variation in residential mortgage interest rates. More specifically, we find posted rate quotes by lenders are directly related to measures of foreclosure process risk including the length of time required to complete foreclosure proceedings within a jurisdiction and the presence (and length) of statutory redemption periods. Mortgage rates are also found to be contingent upon differential underwriting fees and conditions, housing appreciation and volatility measures, and the competitive nature of the economic marketplace in which each lender operates. In contrast to the previous literature, we find the judicial foreclosure process requirements exert little to no impact on observable mortgage interest rate quotes after controlling for these additional dimensions of risk