Friday, August 21, 2009

New Paper on Mortgage Modification

Means-Tested Mortgage Modification: Homes Saved or Income Destroyed?

Click here for an executive summary.

This paper uses the theories of price discrimination and optimal taxation to investigate effects of underwater mortgages on foreclosures and the incentives to earn income, and the degree to which those effects are shaped by public policy. I find that the federal government’s means-tested mortgage modification plan creates a massive implicit tax that may be significant even from a macroeconomic perspective. An alternative of modifying mortgages to maximize lender collections would also feature means tests, but with less effort distortion and perhaps fewer foreclosures. The paper also considers the consequences of a public policy that left mortgage modification to lenders, subject to a requirement that modification would not be conditioned on borrower income.

3 comments:

Daniel said...

Any non-nber versions available? More generally, what is with the U of C? You guys don't allow outsiders to view your papers very easily. MIT and Harvard economists allow anyone to read their work.

beachdude said...

The most common mortgage modifications are listed below:

lowering the mortgage interest rate
reducing the mortgage principal balance
fixing adjustable interest rates within the mortgage
increasing the loan term throughout the mortgage
forgiveness of payment defaults and fees
or any combination of the above

Check out this public service site: http://mortgagemodificationinfo.org

Research Writer said...

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