Bitte verwenden Sie diesen Link, um diese Publikation zu zitieren, oder auf sie als Internetquelle zu verweisen: https://hdl.handle.net/10419/234073 
Erscheinungsjahr: 
2021
Schriftenreihe/Nr.: 
ECB Working Paper No. 2519
Verlag: 
European Central Bank (ECB), Frankfurt a. M.
Zusammenfassung: 
In this paper we examine the effects of limited liability on mortgage dynamics. While the literature has focused on default rates, renegotiation, or loan rates individually, we study them together as equilibrium outcomes of the strategic interaction between lenders and borrowers. We present a simple model of default and renegotiation where the degree of limited liability plays a key role in agents' strategies. We then use Fannie Mae loan performance data to test the predictions of the model. We focus on Metropolitan Statistical Areas that are crossed by a State border in order to exploit the discontinuity in regulation around the borders of States. As predicted by the model, we find that limited liability results in higher default rates and renegotiation rates. Regarding loan pricing, while the model predicts higher interest rates for limited liability loans, we find no such evidence in the Fannie Mae data. We further investigate this by using loan application data, which contains the interest rates on loans sold to private vs public investors. We find that private investors do price in the difference in ex-ante predictable default risk for limited liability loans.
Schlagwörter: 
lender recourse
mortgage contracts
debt repudiation
renegotiation
discontinuity
JEL: 
D10
E40
G21
R20
R30
Persistent Identifier der Erstveröffentlichung: 
ISBN: 
978-92-899-4519-6
Dokumentart: 
Working Paper

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