 Cost-effective mortgage modification program to reduce mortgage defaultsJiseob Kim and Taejun Lim Economic Modelling, 2021, vol. 96, issue C, 220-241 Abstract: What is the most cost-effective mortgage modification program to reduce mortgage defaults? To shed light on this question and evaluate the Home Affordable Modication Program (HAMP) initiated in 2009, we present a quantitative model where home-buying households can take out a mortgage loan whose price is endogenously determined to reflect the mortgage contract terms—maturity, per-period payment, and amortization scheme—as well as the default risk. We conduct an experiment in which (i) a series of house price shocks are plugged into the model economy to generate the housing market crash, mirroring the recent financial crisis, and (ii) three alternative government-funded mortgage modification programs, each associated with a change in maturity, per-period payment, or amortization scheme, are introduced and compared. We find that the amortization reschedule is the most cost-effective way of implementing a modification program, followed by the payment reduction and the term extension. Keywords: Mortgage modification; Foreclosure; HAMP (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:96:y:2021:i:c:p:220-241 DOI: 10.1016/j.econmod.2020.12.030 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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