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"Pennies On The Dollar": Reallocating Risk And Deficiency Judgment Liability, Kristen Barnes
"Pennies On The Dollar": Reallocating Risk And Deficiency Judgment Liability, Kristen Barnes
Akron Law Faculty Publications
Many homeowners are unaware that they face the prospect of crushing personal financial liability if they default on their mortgage loans. While owners may appreciate that they can lose their homes to the lender if they fail to make payments in accordance with their loan terms, many do not fully comprehend that the exposure they have under such circumstances does not end with relinquishing the financed property. In what are known as recourse states, if the lender forecloses and the foreclosure sale does not yield an amount sufficient to cover the borrower’s outstanding debt balance, the lender may file for …
Mortgage Modification And Strategic Behavior: Evidence From A Legal Settlement With Countrywide, Christopher Mayer, Edward R. Morrison, Tomasz Piskorski, Arpit Gupta
Mortgage Modification And Strategic Behavior: Evidence From A Legal Settlement With Countrywide, Christopher Mayer, Edward R. Morrison, Tomasz Piskorski, Arpit Gupta
Faculty Scholarship
We investigate whether homeowners respond strategically to news of mortgage modification programs. We exploit plausibly exogenous variation in modification policy induced by settlement of U.S. state government lawsuits against Countrywide Financial Corporation, which agreed to offer modifications to seriously delinquent borrowers. Using a difference-in-difference framework, we find that Countrywide's monthly delinquency rate increased more than 0.54 percentage points – ten 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.