Regulating zombie mortgages

Jonathan Lee, Duc Duy Nguyen and Huyen Nguyen

No 16/2024, IWH Discussion Papers from Halle Institute for Economic Research (IWH)

Abstract: Using the adoption of Zombie Property Law (ZL) across several US states, we show that increased lender accountability in the foreclosure process affects mortgage lending decisions and standards. Difference-in-differences estimations using a state border design show that ZL incentivizes lenders to screen mortgage applications more carefully: they deny more applications and impose higher interest rates on originated loans, especially risky loans. In turn, these loans exhibit higher ex-post performance. ZL also affects lender behavior after borrowers become distressed, causing them to strategically keep delinquent mortgages alive. Our findings inform the debate on policy responses to foreclosure crises.

Keywords: Zombie lending; mortgage screening; mortgage renegotiation (search for similar items in EconPapers)
JEL-codes: G21 G28 K25 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-ban, nep-fdg, nep-law and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/298000/1/1891049496.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:iwhdps:298000

Access Statistics for this paper

More papers in IWH Discussion Papers from Halle Institute for Economic Research (IWH) Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().