Reducing Foreclosures
Reducing Foreclosures

Author: Christopher Foote

Publisher: DIANE Publishing

Published: 2009

Total Pages: 53

ISBN-13: 1437928773

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Takes a skeptical look at a leading argument about what is causing the foreclosure crisis and what should be done to stop it. The authors focus on two key decisions: the borrower's choice to default on a mortgage and the lender's subsequent choice whether to renegotiate or modify the loan. Unaffordable loans, defined as those with high mortgage payments relative to income at origination, are unlikely to be the main reason that borrowers decide to default. The efficiency of foreclosure for investors is a more plausible explanation for the low number of modifications to date. Policies designed to reduce foreclosures should focus on ameliorating the effects of job loss rather than modifying loans to make them more affordable on a long-term basis. Illustrations.

Reducing Foreclosures
Reducing Foreclosures

Author: Christopher L. Foote

Publisher:

Published: 2014

Total Pages: 53

ISBN-13:

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This paper takes a skeptical look at a leading argument about what is causing the foreclosure crisis and what should be done to stop it. We use an economic model to focus on two key decisions: the borrower's choice to default on a mortgage and the lender's subsequent choice whether to renegotiate or modify the loan. The theoretical model and econometric analysis illustrate that unaffordable loans, defined as those with high mortgage payments relative to income at origination, are unlikely to be the main reason that borrowers decide to default. In addition, this paper provides theoretical results and empirical evidence supporting the hypothesis that the efficiency of foreclosure for investors is a more plausible explanation for the low number of modifications to date than contract frictions related to securitization agreements between servicers and investors. While investors might be foreclosing when it would be socially efficient to modify, there is little evidence to suggest they are acting against their own interests when they do so. An important implication of our analysis is that policies designed to reduce foreclosures should focus on ameliorating the immediate effects of job loss and other adverse life events rather than modifying loans to make them more affordable on a long-term basis.

Brookings Papers on Economic Activity: Spring 2012
Brookings Papers on Economic Activity: Spring 2012

Author: Herman Royer Professor of Political Economy David H Romer

Publisher: Brookings Institution Press

Published: 2012-08-31

Total Pages: 423

ISBN-13: 0815724322

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"Brookings Papers on Economic Activity" (BPEA) provides academic and business economists, government officials, and members of the financial and business communities with timely research on current economic issues. Contents - Democratic Change in the Arab World, Past and Present Eric Chaney (Harvard University) - Disentangling the Channels of the 2007-2009 Recession James Stock (Harvard University) and Mark Watson (Princeton University) - Macroeconomic Effects of FOMC Forward Guidance Jeffrey Campbell, Charles Evans, Jonas Fisher, and Alejandro Justiniano (Federal Reserve Bank of Chicago) - Is the Debt Overhang Holding Back Consumption? Karen Dynan (Brookings Institution) - The Euro's Three Crises Jay Shambaugh (Georgetown University) - Fiscal Policy in a Depressed Economy J. Bradford DeLong (University of California-Berkeley) and Lawrence Summers (Harvard University )

The American Mortgage System
The American Mortgage System

Author: Susan M. Wachter

Publisher: University of Pennsylvania Press

Published: 2011-05-31

Total Pages: 399

ISBN-13: 0812204301

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Successful home ownership requires the availability of appropriate mortgage products. In the years leading up to the collapse of the housing market, home buyers frequently accepted mortgages that were not only wrong for them but catastrophic for the economy as a whole. When the housing market bubble burst, so did a cornerstone of the American dream for many families. Restoring the promise of this dream requires an unflinching inspection of lending institutions and the right tools to repair the structures that support solid home purchases. The American Mortgage System: Crisis and Reform focuses on the causes of the housing market collapse and proposes solutions to prevent another rash of foreclosures. Edited by two leaders in the field of real estate and finance, Susan M. Wachter and Marvin M. Smith, The American Mortgage System examines key elements of the mortgage meltdown. The volume's contributors address the influence of the Community Reinvestment Act, which is often blamed for the crisis. They uncover how the government-sponsored enterprises Fannie Mae and Freddie Mac invested outside the housing market with disastrous results. They present surprising information about low-income borrowers and the strengths of local banks. This collection of thoughtful studies includes extensive analysis of loan practices and the creation of unstable mortgage securities, presenting data largely unavailable until now. More than a critique, The American Mortgage System offers solutions to the problems facing the future of American home ownership, including identifying asset price bubbles, calculating risk, and preventing discrimination in lending. Measured yet timely and by turns provocative, The American Mortgage System provides a careful assessment of a troubled but indispensable part of the economic and social structure of the United States. This book is a sound investment for economists, urban planners, and all who shape public policy.

Financial Literacy and Subprime Mortgage Delinquency
Financial Literacy and Subprime Mortgage Delinquency

Author: Kristopher Gerardi

Publisher: DIANE Publishing

Published: 2010-10

Total Pages: 54

ISBN-13: 143793398X

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Investigates whether a particular aspect of borrowers' financial literacy ¿ their numerical ability ¿ may have played a role in the subprime mortgage collapse. The authors measure several aspects of financial literacy and cognitive ability in a survey of subprime mortgage borrowers who took out mortgages in 2006 or 2007 and match these measures to objective data on mortgage characteristics and repayment performance. The result: a large and statistically significant negative correlation between numerical ability and various measures of delinquency and default. Foreclosure starts are approximately 2/3 lower in the group with the highest measured level of numerical ability compared with the group with the lowest measured level. Illus.

The Redistribution Recession
The Redistribution Recession

Author: Casey B. Mulligan

Publisher: Oxford University Press

Published: 2012-11-29

Total Pages: 364

ISBN-13: 0199942218

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"Major subsidies and regulations intended to help the poor and unemployed were changed in more than a dozen ways after 2007. Economist Casey B. Mulligan argues that many of these changes were reasonable reactions to economic events, with the intention of helping people endure the recession, but they also reduced incentives for people to work and businesses to hire. He measures the startling changes in implicit tax rates that resulted from a labyrinth of new and expanded 'social safety net' programs, and quantifies the effects of these changes on the labor market and the economy. He also reveals how borrowers can expect their earnings to affect the amount that lenders will forgive in debt renegotiation, and how this has acted as a massive implicit tax on earning. He explains how redistribution in the forms of subsidies, taxes and minimum-wage laws profoundly altered the path of the economy and made the recent recession one of the deepest and longest in decades. The Redistribution Recession is a controversial, clear-cut, and thoroughly researched analysis of the effects of various government policies on the labor market. It offers ground-breaking interpretations and precise explanations of the interplay between unemployment and financial markets."--Jacket.

Financial Crises
Financial Crises

Author: Mr.Stijn Claessens

Publisher: International Monetary Fund

Published: 2014-02-19

Total Pages: 754

ISBN-13: 1484355261

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The lingering effects of the economic crisis are still visible—this shows a clear need to improve our understanding of financial crises. This book surveys a wide range of crises, including banking, balance of payments, and sovereign debt crises. It begins with an overview of the various types of crises and introduces a comprehensive database of crises. Broad lessons on crisis prevention and management, as well as the short-term economic effects of crises, recessions, and recoveries, are discussed.

Crash and Beyond
Crash and Beyond

Author: Andrew Farlow

Publisher: OUP Oxford

Published: 2013-04-11

Total Pages: 1297

ISBN-13: 0191620254

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In 2008, the world was plunged into a financial and economic crash. This book explores the roots of the crash, including the build-up of global economic imbalances, the explosion in the use of novel financial instruments, the mismanagement of risk, and the specific roles played by housing and debt. It reviews the evidence that on the eve of the crash all was not well and that many political and finance industry leaders ignored the dangers. The key events of the crash are described, and the main amplification mechanisms explained. An economics lens is used to dissect the bank rescue, paying particular attention to the hidden ways in which it worked, who will ultimately bear the costs, and to what degree new risks were created. The book evaluates the fiscal and monetary policies used to rescue economies, efforts to tackle unemployment, proposals for dealing with collapsing housing markets, austerity and the battles over long-term sovereign debt, the Eurozone crash, and the risks of future economic instability. It reviews reform-of mortgage markets, monetary policy, and banking-designed to make such disasters less likely in future. Written before, during, and in the years immediately after the crash, it is an engaging chronicle and comprehensive analysis of the events and thinking of these years. The book's arguments take on added authority given that the author had identified, and called attention to, key features of the crash before it happened.