The Economic Role of Foreclosures
AbstractWe consider the economic consequences of changing the foreclosure rules. By incorporating renegotiation into the analysis, we show that although renegotiation decreases the number of foreclosures, it can make the effects of foreclosure more significant. Even when foreclosure does not actually occur, a change in foreclosure rules changes the threat points of lender and borrower in any renegotiation and thus changes the effective interest rate that the lender receives. In the long run, stated interest rates on loans will adjust to compensate for any change in the effective interest rate. We also examine the impact of a change in foreclosure laws on the borrower's welfare. Copyright 1994 by Kluwer Academic Publishers
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Bibliographic InfoArticle provided by Springer in its journal Journal of Real Estate Finance & Economics.
Volume (Year): 8 (1994)
Issue (Month): 1 (January)
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Web page: http://www.springerlink.com/link.asp?id=102945
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- Casey B. Mulligan, 2009. "Means-Tested Mortgage Modification: Homes Saved or Income Destroyed?," NBER Working Papers 15281, National Bureau of Economic Research, Inc.
- David C. Wheelock, 2008. "Government response to home mortgage distress: lessons from the Great Depression," Working Papers 2008-038, Federal Reserve Bank of St. Louis.
- Kelly D. Edmiston & Roger Zalneraitis, 2007. "Rising foreclosures in the United States: a perfect storm," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 115-145.
- David C. Wheelock, 2008. "Changing the rules: state mortgage foreclosure moratoria during the Great Depression," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 569-584.
- Goodman, Allen C. & Smith, Brent C., 2010. "Residential mortgage default: Theory works and so does policy," Journal of Housing Economics, Elsevier, vol. 19(4), pages 280-294, December.
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