Title
Mortgage Modification and Strategic Behavior: Evidence from a Legal Settlement with Countrywide
Document Type
Working Paper
Publication Date
2011
Abstract
We investigate whether homeowners respond strategically to news of mortgage modification programs. 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 subprime mortgages throughout the country. Using a difference-in-difference framework, we find that Countrywide's relative delinquency rate increased thirteen 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 default otherwise, including those with substantial liquidity available through credit cards and relatively low combined loan-to-value ratios. These results suggest that strategic behavior should be an important consideration in designing mortgage modification programs.
Disciplines
Banking and Finance Law | Bankruptcy Law | Housing Law | Law | Law and Economics
Center/Program
Center for Law and Economic Studies
Recommended Citation
Christopher J. Mayer, Edward R. Morrison, Tomasz Piskorski & Arpit Gupta,
Mortgage Modification and Strategic Behavior: Evidence from a Legal Settlement with Countrywide,
National Bureau of Economic Research Working Paper No. 17065
(2011).
Available at:
https://scholarship.law.columbia.edu/faculty_scholarship/2412
Included in
Banking and Finance Law Commons, Bankruptcy Law Commons, Housing Law Commons, Law and Economics Commons