Mortgage Modification and Strategic Behavior: Evidence from a Legal Settlement with Countrywide

Christopher Mayer, Edward Morrison, Tomasz Piskorski and Arpit Gupta

American Economic Review, 2014, vol. 104, issue 9, 2830-57

Abstract: We investigate whether homeowners respond strategically to news of mortgage modification programs. We exploit plausibly exogenous variation in modification policy induced by settlement of U.S. state government lawsuits against Countrywide Financial Corporation, which agreed to offer modifications to seriously delinquent borrowers. Using a difference-in-difference framework, we find that Countrywide's monthly delinquency rate increased more than 0.54 percentage points—a ten percent relative increase—immediately after the settlement's announcement. The estimated increase in default rates is largest among borrowers least likely to default otherwise. These results suggest that strategic behavior should be an important consideration in designing mortgage modification programs. (JEL D10, G21, G33, K00)

JEL-codes: D14 G21 K22 R31 (search for similar items in EconPapers)
Date: 2014
Note: DOI: 10.1257/aer.104.9.2830
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Working Paper: Mortgage Modification and Strategic Behavior: Evidence from a Legal Settlement with Countrywide (2011)
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