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dc.contributor.authorFoote, Christopher L.en_US
dc.contributor.authorGerardi, Kristopher S.en_US
dc.contributor.authorGoette, Lorenzen_US
dc.contributor.authorWillen, Paul S.en_US
dc.date.accessioned2009-07-27en_US
dc.date.accessioned2012-06-20T16:09:41Z-
dc.date.available2012-06-20T16:09:41Z-
dc.date.issued2009en_US
dc.identifier.urihttp://hdl.handle.net/10419/59224-
dc.description.abstractThis 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 the mortgage and the lender's choice on 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. Rather, the typical problem appears to be a combination of household income shocks and an unprecedented fall in house prices. Regarding the small number of loan modifications to date, we show, both theoretically and empirically, that the efficiency of foreclosure for investors is a more plausible explanation for the low number of modifications 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.en_US
dc.language.isoengen_US
dc.publisherFederal Reserve Bank of Boston Boston, MAen_US
dc.relation.ispartofseriesPublic policy Discussion Papers, Federal Reserve Bank of Boston 09,2en_US
dc.subject.jelD11en_US
dc.subject.jelD12en_US
dc.subject.jelG21en_US
dc.subject.ddc330en_US
dc.subject.stwHypotheken_US
dc.subject.stwSubprime-Hypotheken_US
dc.subject.stwFinanzmarktkriseen_US
dc.subject.stwSecuritizationen_US
dc.subject.stwZwangsvollstreckungen_US
dc.subject.stwUSAen_US
dc.titleReducing foreclosuresen_US
dc.typeWorking Paperen_US
dc.identifier.ppn605421870en_US
dc.rightshttp://www.econstor.eu/dspace/Nutzungsbedingungenen_US
Appears in Collections:Public Policy Discussion Papers, Federal Reserve Bank of Boston

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