The dark side of sunshine: Regulatory oversight and status quo bias

J. Michael Collins and Carly Urban

Journal of Economic Behavior & Organization, 2014, vol. 107, issue PB, 470-486

Abstract: As the mortgage foreclosure crisis accelerated in the U.S. in the late 2000s, state-level policymakers implemented measures designed to protect consumers and stem the tide of foreclosures. One form of policy was simply to require lenders to report on foreclosure prevention activities. Such policies represented a shift from the status quo for mortgage loan servicing firms operating under incomplete information—doing nothing with non-paying loans while waiting for more information to be revealed—to either foreclosing on the borrower or offering the borrower a modification of loan terms. Using a difference-in-difference-in-differences empirical strategy, we exploit one policy implemented in Maryland for a subset of mortgage servicers and find evidence that firms perform more loan modifications, as well as file more foreclosures. Increasing foreclosure filings was contrary to the intent of the policy, suggesting that policymakers should be aware of how firms exhibit systematic biases, much like individuals.

Keywords: Status quo bias; Loss aversion; Mortgage foreclosure (search for similar items in EconPapers)
JEL-codes: D1 G21 I3 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:107:y:2014:i:pb:p:470-486

DOI: 10.1016/j.jebo.2014.04.003

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