crisis

A Crisis of Missed Opportunities? Foreclosure Costs and Mortgage Modification During the Great Recession

This paper investigates the housing and broader economic effects of the 2000s crisis-period California Foreclosure Prevention Laws (CFPLs). The CFPLs encouraged lenders to modify mortgage loans by increasing the required time and pecuniary costs of foreclosure. Using the Synthetic Control Methodology, we find that the CFPLs prevented 335,000 California foreclosures, equivalent to a 30% reduction during the treatment period. These effects did not reverse after the conclusion of the policy, implying that the CFPLs were not a stopgap measure that simply delayed foreclosures until a later date. Our analysis also shows that the CFPLs increased house prices by 5 percent and in doing so created $250 billion of housing wealth. Findings further indicate that these gains in housing wealth did not translate into increased durable consumption as measured by auto sales. Disaggregated county and zip-code level estimates reveal that the CFPL house price increases were markedly higher in the hard hit areas of Southern California. Altogether, results suggest that the CFPLs were substantially more effective than the US Government’s HAMP Program in mitigating foreclosures and stabilizing the housing markets.

Full paper below…

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4closureFraud.org

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A Crisis of Missed Opportunities? Foreclosure Costs and Mortgage Modification During the Great Recession