Final answer:
A borrower in default may have the right of redemption to buy back their house from the bank, which is a period where they can repay the full amount owed. This legal option varies by state and was especially pertinent during the 2007 financial crisis when the housing market collapsed.
Step-by-step explanation:
When a borrower is in default, which means they have not been able to keep up with their mortgage payments, there still may be a legal option available to them to buy back their house from the bank, known as the right of redemption. This right is generally defined by state foreclosure laws and can vary widely from one state to another. While not all states offer a post-foreclosure right of redemption, the ones that do typically allow for a period during which the borrower can repay the full amount owed, including any additional fees and interest, to reclaim their property. This mechanism was crucial during the housing bubble and the financial crisis of 2007 when many homeowners found themselves with properties valued at less than their mortgages. Financial institutions faced a severe blow as mortgage-backed securities plummeted in value and credit markets froze.