Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/96862
Authors: 
Li, Wenli
Tewari, Ishani
White, Michelle
Year of Publication: 
2014
Series/Report no.: 
CESifo Working Paper 4722
Abstract: 
We assess the credit market impact of allowing mortgage “strip-down” as a foreclosure-prevention measure, where strip-down reduces the principal of underwater residential mortgages to the current market value of the property for homeowners in Chapter 13 bankruptcy. Our identification is provided by a series of U.S. court decisions that introduced strip-down in parts of the U.S. and a Supreme Court ruling that abolished it. We find that the Supreme Court decision led to a small, short-term reduction in mortgage interest rates and a small, short-term increase in mortgage approval rates, but no long-term effects, and the circuit court decisions did not consistently affect mortgage terms. These results suggest that strip-down would be an effective foreclosure-prevention program, because it would have only small and transient effects on the supply of mortgage loans.
Subjects: 
mortgage
foreclosure
credit market
credit supply
strip-down
JEL: 
K35
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.