Work

Regulating zombie mortgages

Year: 2026

Type: article

Abstract: Using the adoption of Zombie Property Laws (ZL) across several US states, we show that requiring lenders to maintain properties in the foreclosure process affects mortgage lending decisions and standards. Difference-in-differences estimations using a state border design show that ZL incentivizes lenders to screen mortgage applications more carefully: they deny more applications and impose higher interest rates on originated loans, especially risky loans. In turn, these loans exhibit higher ex post performance. ZL also affects lender behavior after borrowers become distressed, causing them to strategically keep delinquent mortgages alive. Our findings inform the debate on policy responses to foreclosure crises.

Source: Review of Finance

DOI: 10.1093/rof/rfag008

Authors: Jonathan Lee, Duc Duy Nguyen, Huyen Nguyen

Institutions: University of Glasgow, University of St Andrews, Durham University, King's College London

Language: English

Topic: Housing Market and Economics

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Peace, justice, and strong institutions

Open Access status: hybrid

Estimated APC paid: $4,431