Forced Asset Sales and the Concentration of Outstanding Debt: Evidence from the Mortgage Market

Giovanni Favara and Mariassunta Giannetti

No 10476, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We provide evidence that lenders differ in their ex post incentives to internalize price-default externalities associated with the liquidation of collateralized debt. Using the mortgage market as a laboratory, we conjecture that lenders with a large share of outstanding mortgages on their balance sheets internalize the negative spillovers associated with the liquidation of defaulting mortgages and are thus less inclined to foreclose. We find that zip codes with higher concentration of outstanding mortgages experience fewer foreclosures, more renegotiations of delinquent mortgages, and smaller house prices declines. These results are not driven by prior local economic conditions, mortgage securitization or unobservable lender characteristics.

Keywords: House prices; Foreclosures; Bank concentration; Fire sales (search for similar items in EconPapers)
JEL-codes: G01 G21 R31 R38 (search for similar items in EconPapers)
Date: 2015-03
New Economics Papers: this item is included in nep-ban and nep-ure
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Citations: View citations in EconPapers (3)

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Journal Article: Forced Asset Sales and the Concentration of Outstanding Debt: Evidence from the Mortgage Market (2017)
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