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Working Paper
Using bankruptcy to reduce foreclosures: does strip-down of mortgages affect the supply of mortgage credit?
We assess the credit market impact of mortgage ?strip-down? ? reducing the principal of underwater residential mortgages to the current market value of the property for homeowners in Chapter 7 or Chapter 13 bankruptcy. Strip-down of mortgages in bankruptcy was proposed as a means of reducing foreclosures during the recent mortgage crisis but was blocked by lenders. Our goal is to determine whether allowing bankruptcy judges to modify mortgages would have a large adverse impact on new mortgage applicants. Our identification is provided by a series of U.S. Court of Appeals decisions during the ...
Working Paper
Private Takings
This paper examines the implications associated with a recent Supreme Court ruling, Kelo v. City of New London. Kelo can be interpreted as supporting eminent domain as a means of transferring property rights from one set of private agents ? landowners ? to another private agent ? a developer. Under voluntary exchange, where the developer sequentially acquires property rights from landowners via bargaining, a holdout problem arises. Eminent domain gives all of the bargaining power to the developer and, as a result, eliminates the holdout problem. This is the benefit of Kelo. However, ...
Working Paper
Sovereign Default in the US
In the absence of a judicial mechanism to reduce the debt burden of a sovereign member of our Union, the resolution process can be quick but perhaps too indifferent to the health, safety, and welfare of the affected residents. In this paper, I use evidence from the Arkansas state archives to provide a description of the events surrounding the default of the state in 1933. I examine the evolution of the negotiations, the outcomes, and the role of fiscal policy.
Report
Determinants of mortgage default and consumer credit use: the effects of foreclosure laws and foreclosure delays
The mortgage default decision is part of a complex household credit management problem. We examine how factors affecting mortgage default spill over to other credit markets. As home equity turns negative, homeowners default on mortgages and HELOCs at higher rates, whereas they prioritize repaying credit cards and auto loans. Larger unused credit card limits intensify the preservation of credit cards over housing debt. Although mortgage non-recourse statutes increase default on all types of housing debt, they reduce credit card defaults. Foreclosure delays increase default rates for both ...