ABI Podcast Equity-Stripping Led to Foreclosures According to New California Study

ABI Podcast Equity-Stripping Led to Foreclosures According to New California Study

Contact: John Hartgen
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July 22, 2009 Alexandria, Va. – The latest American Bankruptcy Institute podcast features a conversation between ABI Executive Director Sam Gerdano and Michael LaCour-Little, Professor of Finance at California State University at Fullerton, about LaCour-Little’s recent study that found borrower behavior, such as equity-stripping and multiple liens, is a principal culprit in spurring foreclosures, even more than market forces. The research refutes much of the current dialogue onCapitol Hill that is geared toward protecting homeowners from foreclosure.To listen to the interview, please visit http://podcast.abiworld.org/.

Prof. LaCour-Little’s study, titled “Follow the Money: A Close Look at Recent Southern California Foreclosures,” calls into question the proposed policies aimed at helping prevent homeowners from foreclosure. The study looked at a sample of over 4,000 foreclosure proceedings from November 2006-08 in Southern California, the epicenter of the U.S. foreclosure crisis. Some of the key findings of the study include:

  • Defaulting borrowers did not purchase at the top of the market in 2006. (The average acquisition year was actually 2002 with many acquisitions made in the 1990s.)
  • Most (52 percent) had already refinanced at least once.
  • 79 percent had a second lien.

The study found that borrowers extracted nearly eight times the amount of equity from their homes (nearly $2 billion) as they invested in their homes ($262 million). Losses to lenders, however, would likely total around $1.0, according to the study.

LaCour-Little concluded from his samples that the economic losses of the housing boom have been incurred by lenders, not borrowers, whose extensive use of debt in response to rising house prices and liberal credit availability appears to have led to the rising tide of foreclosures.

The ABI World podcast provides listeners the flexibility to enjoy the podcast from a computer or to download to their digital audio player for listening on-the-go. A new podcast will be available periodically on the ABI World Web site featuring a conversation with a prominent figure in bankruptcy law.

To access the ABI World podcasts, follow the link below:


ABI is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes more than 12,000 attorneys, accountants, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals, providing a forum for the exchange of ideas and information. For additional information on ABI, visit www.abiworld.org. For additional conference information, visit http://www.abiworld.org/conferences.html.