Second Chances: Subprime Mortgage Modification and Redefault

Abstract

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Dynamic Analysis of Defaults and Prepayments in the Turkish Mortgage Market

“…The effect of loan restructuring on default and prepayment are observed by a number of studies. The fact that wealth motives tend to be an important determinant of default decisions at high levels of negative equity is consistent with the empirical findings of Haughwout et al (2016). They find that the re-default rate declines relatively more when payment reduction is achieved through principal forgiveness as compared to lower interest rates.…”

Fintech, regulatory arbitrage, and the rise of shadow banks

“…Our paper relates to a large literature examining the role of government programs undertaken during the financial crisis (e.g., Mayer et al, 2014;Haughwout, Okah, and Tracy (2016); Agarwal et al, 2015Agarwal et al, , 2017. Like Agarwal et al (2014), Lucca, Seru, and Trebbi (2014), Granja, Matvos, and Seru (2017), Piskorski, Seru, and Witkin (2015), Fligstein and Roehrkasse (2016), Granja and Leuz (2017), we study lawsuits arising out of the financial crisis, capital constraints, and the closure of the OTS.…”

Liquidity vs. Wealth in Household Debt Obligations: Evidence from Housing Policy in the Great Recession

“…For example, Haughwout et al (2016) use data on modifications performed prior to HAMP and find using cross-sectional variation that borrowers who received principal reductions equivalent to ours saw an 18 percentage point reduction in default. Furthermore, there is a strong cross-sectional relationship between the amount of negative equity and default rates across all borrowers (Gerardi et al 2015).…”

“…Indeed, quantitatively our results suggest that immediate liquidity provision is a key driver of the default reductions found in two types of prior work analyzing the e ect of sustained payment reductions. First, Agarwal et al (2011) and Haughwout et al (2016) analyze modifications provided to delinquent borrowers before the implementation of the HAMP program. They find that a one percent immediate payment reduction that also reduces long-term debt obligations is associated with a 1.1 percent to 1.3 percent reduction in default rates.…”