Foreclosures, Enforcement, and Collections under the Federal Mortgage Modification Guidelines

Casey Mulligan

No 15777, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Federal mortgage modification initiatives, targeting millions of borrowers, are intended to prevent foreclosures of underwater home mortgages. Those initiatives discourage principal reductions in favor of interest reductions, despite the possibility that the former would be a more durable foreclosure prevention tool. The programs also impose marginal income tax rates substantially in excess of 100 percent. Using the framework of optimal income taxation, this paper shows how alternative means-tested modification rules would simultaneously improve collections, efficiency, the number of foreclosures, and their total cost. As a result, lenders have an incentive to foreclose on borrowers deemed modification eligible by the federal programs.

JEL-codes: H21 L11 R31 (search for similar items in EconPapers)
Date: 2010-02
New Economics Papers: this item is included in nep-acc, nep-reg and nep-ure
Note: EFG ME PE
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Citations: View citations in EconPapers (11)

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