Policy Intervention in Debt Renegotiation: Evidence from the Home Affordable Modification Program
Abstract:
The main rationale for policy intervention in debt renegotiation is to enhance such activity when foreclosures are perceived to be inefficiently high. We examine the ability of the government to influence debt renegotiation by empirically evaluating the effects of the 2009 Home Affordable Modification Program that provided intermediaries (servicers) with sizeable financial incentives to renegotiate mortgages. A difference-in-difference strategy that exploits variation in program eligibility criteria reveals that the program generated an increase in the intensity of renegotiations while adversely affecting effectiveness of renegotiations performed outside the program. Renegotiations induced by the program resulted in a modest reduction in rate of foreclosures but did not alter the rate of house price decline, durable consumption, or employment in regions with higher exposure to the program. The overall impact of the program will be substantially limited since it will induce renegotiations that will reach just one-third of its targeted 3 to 4 million indebted households. This shortfall is in large part due to low renegotiation intensity of a few large servicers that responded at half the rate than others. The muted response of these servicers cannot be accounted by differences in contract, borrower, or regional characteristics of mortgages across servicers. Instead, their low renegotiation activity — which is also observed before the program — reflects servicer specific factors that appear to be related to their preexisting organizational capabilities. Our findings reveal that the ability of government to quickly induce changes in behavior of large intermediaries through financial incentives is quite limited, underscoring significant barriers to the effectiveness of such polices.
Copy of paper below…
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4closureFraud.org
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Policy Intervention in Debt Renegotiation: Evidence from the Home Affordable Modification Program
The muted response of these servicers can be accounted by the fact that they were never held to follow any policy directive which seems to be what is said here. Foaming the runway does not equal any meaningful carrot or stick.
Can we have academics consider or factor in human rights in their objective industry analyses or is housing people otherwise taboo or less important?
LOL…..Why would WE ever even think that these servicers would do anything else but look at the govermental requirments as some way to profit. Banks dont follow government directives, they just use the directive language to their advantage. The gov wont follow up on the wrong doings because they feel that they made an effort creating the requirements and that will keep the sheep (us) pacified.Its like training your dog….you say “NO” the first time but dont reinforce your directive when the dogs bad…..so….everything stays the same..