Some states provide for out-of-court remedies, such as the trust deed system, where an independent trustee is empowered to conduct a public sale of property to resolve a default. In other states, the foreclosed borrower has a redemption period after default in which he can reclaim the property. The analysis here shows how long the lender must allow for these legal remedies to run their course. In a climate of falling property values, the lender's exposure to loss grows as time passes and the loan balance rises.
All three tabs measure the time elapsing (along the
axis) prior to the loan balance exceeding the property value, during which time the foreclosure must be resolved either by cure or sale to a third party if the lender is to avoid a loss. In the "12% default interest" tab, the lender rate is fixed and value changes at a monotonic decline at the annual compounding rate
where growth is a negative value) set by the slider. In the "vary default interest" tab, the user may change the default interest rate, which exacerbates the problem, as interest rates rise during times of falling value (again using
). For "land," because of its greater sensitivity to economic downturns, the fall in value is exponential and governed by a decay rate set by the user as "severity of decline in value,"
is a whole number from 1 to 10 inversely related to the severity of decline.