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Columbia Law School

Bankruptcy Law

2012

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Full-Text Articles in Law

Mortgage Modification And Strategic Behavior: Evidence From A Legal Settlement With Countrywide, Christopher J. Mayer, Edward R. Morrison, Tomasz Piskorski, Arpit Gupta Jan 2012

Mortgage Modification And Strategic Behavior: Evidence From A Legal Settlement With Countrywide, Christopher J. Mayer, Edward R. Morrison, Tomasz Piskorski, Arpit Gupta

Faculty Scholarship

We investigate whether homeowners respond strategically to news of mortgage modification programs by defaulting on their mortgages. We exploit plausibly exogenous variation in modification policy induced by U.S. state government lawsuits against Countrywide Financial Corporation, which agreed to offer modifications to seriously delinquent borrowers with mortgages throughout the country. Using a difference-in-difference framework, we find that Countrywide's relative delinquency rate increased more than ten percent per month immediately after the program's announcement. The borrowers whose estimated default rates increased the most in response to the program were those who appear to have been the least likely to ...