Mortgage Modification and Strategic Behavior: Evidence from a Legal Settlement with Countrywide
Reads0
Chats0
TLDR
The authors investigated whether homeowners respond strategically to news of mortgage modification programs and found that the increase in default rates is largest among borrowers least likely to default otherwise, suggesting that strategic behavior should be an important consideration in designing mortgage modification program.Abstract:
We investigate whether homeowners respond strategically to news of mortgage modification programs. We exploit plausibly exogenous variation in modification policy induced by settlement of US state government lawsuits against Countrywide Financial Corporation, which agreed to offer modifications to seriously delinquent borrowers. Using a difference-in-differences framework, we find that Countrywide's monthly delinquency rate increased more than 0.54 percentage points—a 10 percent relative increase—immediately after the settlement's announcement. The estimated increase in default rates is largest among borrowers least likely to default otherwise. These results suggest that strategic behavior should be an important consideration in designing mortgage modification programs. (JEL D14, G21, K22, R31)read more
Citations
More filters
Journal ArticleDOI
Consumer Ruthlessness and Mortgage Default during the 2007 to 2009 Housing Bust
TL;DR: In this article, the authors argue that emotional and behavioral factors play an important role in decisions to continue paying, which implies that the moral hazard cost of default as a form of social insurance may be lower than suspected.
Journal ArticleDOI
Fraudulent Income Overstatement on Mortgage Applications During the Credit Expansion of 2002 to 2005
Atif Mian,Amir Sufi +1 more
TL;DR: In this paper, a positive gap between zip-code-level income growth calculated from mortgage applications and income growth from the IRS likely reflects mortgage fraud, not an improvement in home-buyer income.
Journal ArticleDOI
Mortgage Market Design: Lessons from the Great Recession
Tomasz Piskorski,Amit Seru +1 more
TL;DR: In this paper, the authors focus on the design and implementation challenges of ex ante and ex post debt relief solutions that are aimed at a more efficient sharing of aggregate risk between borrowers and lenders.
Journal ArticleDOI
Strategic default in the international coffee market
Arthur Blouin,Rocco Macchiavello +1 more
TL;DR: In this article, the authors studied strategic default on forward sale contracts in the international coffee market and found that roughly half of the observed defaults are strategic, and that strategic default introduces a trade-off between insurance and counterparty risk.
Journal ArticleDOI
Too Little, Too Late, and Too Timid: The Federal Response to the Foreclosure Crisis at the Five-Year Mark
TL;DR: The primary federal policy responses to the foreclosure crisis, thus far, include programs to reduce foreclosures and efforts to mitigate the impacts of forecl closures on communities as mentioned in this paper. But these programs pale in comparison with the challenges they are intended to solve and suffer from design and implementation problems.
References
More filters
Journal ArticleDOI
Interaction terms in logit and probit models
Chunrong Ai,Edward C. Norton +1 more
TL;DR: In this article, the authors present the correct way to estimate the magnitude and standard errors of the interaction effect in nonlinear models, which is the same way as in this paper.
ReportDOI
Unemployment insurance and unemployment spells
TL;DR: In this article, the effects of the level and length of unemployment insurance benefits on unemployment durations were investigated and individual behavior during the weeks just prior to when benefits lapse was found to have a strong negative effect on the probability of leaving unemployment.
ReportDOI
The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis
Atif Mian,Amir Sufi +1 more
TL;DR: In this paper, the authors conduct a within-county analysis using detailed ZIP code-level data to document new findings regarding the origins of the biggest financial crisis since the Great Depression, finding that the sharp increase in mortgage defaults in 2007 is significantly amplified in subprime ZIP codes, or ZIP codes with a disproportionately large share of subprime borrowers as of 1996.
Journal ArticleDOI
Collective Moral Hazard, Maturity Mismatch, and Systemic Bailouts †
Emmanuel Farhi,Jean Tirole +1 more
TL;DR: In this article, the authors characterize the optimal regulation, which takes the form of a minimum liquidity requirement coupled with monitoring of the quality of liquid assets, and establish the robustness of their insights when the set of optimal regulations is set.
Journal ArticleDOI
House Prices, Home Equity-Based Borrowing, and the U.S. Household Leverage Crisis
Atif Mian,Amir Sufi +1 more
TL;DR: Mian and Sufi as mentioned in this paper examined the home equity-based borrowing channel using a dataset consisting of anonymous individual credit files of a national consumer credit bureau agency and showed that existing homeowners borrow significantly more debt as their house prices appreciate from 2002 to 2006.
Related Papers (5)
Securitization and distressed loan renegotiation: Evidence from the subprime mortgage crisis.
The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis
Atif Mian,Amir Sufi +1 more