Mortgage Modification and Strategic Behavior: Evidence from a Legal Settlement with Countrywide
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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
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References
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Journal ArticleDOI
The Rise in Mortgage Defaults
TL;DR: The first hints of trouble in the mortgage market surfaced in mid-2005, and conditions subsequently began to deteriorate rapidly as mentioned in this paper, and by the third quarter of 2008, the share of seriously delinquent mortgages had surged to 5.2%.
Journal ArticleDOI
Forced Sales and House Prices
TL;DR: The market for housing differs in several important ways from the textbook model of a liquid asset market with exogenous fundamentals as mentioned in this paper, which implies that the price at which a house is sold can be influenced not only by general supply and demand conditions, but also by idiosyncratic factors, including the urgency of the sale and the effects of ownership transfer on the physical quality of the house.
Journal ArticleDOI
Inconsistent Regulators: Evidence from Banking*
TL;DR: In this article, the authors study supervisory decisions of U.S. banking regulators and exploit a legally determined rotation policy that assigns federal and state supervisors to the same bank at exogenously set time intervals.
Journal ArticleDOI
Renegotiation of financial contracts: Evidence from private credit agreements.
Michael R. Roberts,Amir Sufi +1 more
TL;DR: In this paper, the authors used a large sample of private credit agreements between U.S. publicly traded firms and financial institutions and found that over 90% of long-term debt contracts are renegotiated prior to their stated maturity.
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