IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Policy Intervention in Debt Renegotiation: Evidence from the Home Affordable Modification Program

  • Agarwal, Sumit

    (National University of Singapore)

  • Amromin, Gene

    (Federal Reserve Bank of Chicago)

  • Ben-David, Itzhak

    (OH State University)

  • Chomsisengphet, Souphala

    (US Office of the Comptroller of the Currency)

  • Piskorski, Tomasz

    (Columbia University)

  • Seru, Amit

    (University of Chicago)

The main rationale for policy intervention in debt renegotiation is to enhance such activity when foreclosures are perceived to be inefficiently high. We examine the ability of the government to influence debt renegotiation by empirically evaluating the effects of the 2009 Home Affordable Modification Program that provided intermediaries (servicers) with sizeable financial incentives to renegotiate mortgages. A difference-in-difference strategy that exploits variation in program eligibility criteria reveals that the program generated an increase in the intensity of renegotiations while adversely affecting effectiveness of renegotiations performed outside the program. Renegotiations induced by the program resulted in a modest reduction in rate of foreclosures but did not alter the rate of house price decline, durable consumption, or employment in regions with higher exposure to the program. The overall impact of the program will be substantially limited since it will induce renegotiations that will reach just one-third of its targeted 3 to 4 million indebted households. This shortfall is in large part due to low renegotiation intensity of a few large servicers that responded at half the rate than others. The muted response of these servicers cannot be accounted by differences in contract, borrower, or regional characteristics of mortgages across servicers. Instead, their low renegotiation activity--which is also observed before the program--reflects servicer specific factors that appear to be related to their preexisting organizational capabilities. Our findings reveal that the ability of government to quickly induce changes in behavior of large intermediaries through financial incentives is quite limited, underscoring significant barriers to the effectiveness of such polices.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by Ohio State University, Charles A. Dice Center for Research in Financial Economics in its series Working Paper Series with number 2012-20.

in new window

Date of creation: Nov 2012
Date of revision:
Handle: RePEc:ecl:ohidic:2012-20
Contact details of provider: Phone: (614) 292-8449
Web page:

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Jonathan A. Parker, 2011. "On Measuring the Effects of Fiscal Policy in Recessions," NBER Working Papers 17240, National Bureau of Economic Research, Inc.
  2. Patrick Bolton & Howard Rosenthal, 2002. "Political Intervention in Debt Contracts," Journal of Political Economy, University of Chicago Press, vol. 110(5), pages 1103-1134, October.
  3. Christopher Mayer & Edward Morrison & Tomasz Piskorski & Arpit Gupta, 2014. "Mortgage Modification and Strategic Behavior: Evidence from a Legal Settlement with Countrywide," American Economic Review, American Economic Association, vol. 104(9), pages 2830-57, September.
  4. Lawrence J. Christiano & Martin Eichenbaum & Sergio Rebelo, 2010. "When is the government spending multiplier large?," FRB Atlanta CQER Working Paper 2010-01, Federal Reserve Bank of Atlanta.
  5. Atif Mian & Amir Sufi, 2009. "The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis," The Quarterly Journal of Economics, MIT Press, vol. 124(4), pages 1449-1496, November.
  6. Agarwal, Sumit & Amromin, Gene & Ben-David, Itzhak & Chomsisengphet, Souphala & Evanoff, Douglas D., 2011. "The Role of Securitization in Mortgage Renegotiation," Working Paper Series 2011-2, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
  7. Sumit Agarwal & Chunlin Liu & Nicholas S. Souleles, 2007. "The reaction of consumer spending and debt to tax rebates – evidence from consumer credit data," Working Paper Series WP-07-10, Federal Reserve Bank of Chicago.
  8. Craig Burnside & Martin Eichenbaum & Sergio Rebelo, 2012. "Understanding booms and busts in housing markets," FRB Atlanta CQER Working Paper 2012-02, Federal Reserve Bank of Atlanta.
  9. Barro, Robert J, 1989. "The Ricardian Approach to Budget Deficits," Journal of Economic Perspectives, American Economic Association, vol. 3(2), pages 37-54, Spring.
  10. Thomas Philippon & Virgiliu Midrigan, 2011. "Household Leverage and the Recession," 2011 Meeting Papers 261, Society for Economic Dynamics.
  11. Fernando Ferreira & Joseph Gyourko & Joseph Tracy, 2008. "Housing busts and household mobility," Staff Reports 350, Federal Reserve Bank of New York.
  12. Alston, Lee J., 1983. "Farm Foreclosures in the United States During the Interwar Period," The Journal of Economic History, Cambridge University Press, vol. 43(04), pages 885-903, December.
  13. Randall S. Kroszner, 1998. "Is it Better to Forgive than to Receive? Repudiation of the Gold Indexation Clause in Long-Term Debt During the Great Depression," CRSP working papers 481, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  14. Glaeser, Edward L. & Gyourko, Joseph & Saiz, Albert, 2008. "Housing supply and housing bubbles," Journal of Urban Economics, Elsevier, vol. 64(2), pages 198-217, September.
  15. Atif Mian & Amir Sufi, 2010. "The Effects of Fiscal Stimulus: Evidence from the 2009 'Cash for Clunkers' Program," NBER Working Papers 16351, National Bureau of Economic Research, Inc.
  16. Sydney Ludvigson & Stijn Van Nieuwerburgh & Jack Favilukis, 2010. "The Macroeconomic E¤ects of Housing Wealth, Housing Finance, and Limited Risk-Sharing in General Equilibrium," 2010 Meeting Papers 733, Society for Economic Dynamics.
  17. Nicholas S. Souleles & Jonathan A. Parker & David S. Johnson, 2006. "Household Expenditure and the Income Tax Rebates of 2001," American Economic Review, American Economic Association, vol. 96(5), pages 1589-1610, December.
  18. Alan J. Auerbach & Yuriy Gorodnichenko, 2011. "Fiscal Multipliers in Recession and Expansion," NBER Working Papers 17447, National Bureau of Economic Research, Inc.
  19. Christopher J. Mayer & Karen M. Pence & Shane M. Sherlund, 2008. "The rise in mortgage defaults," Finance and Economics Discussion Series 2008-59, Board of Governors of the Federal Reserve System (U.S.).
  20. Yuliya Demyanyk & Otto Van Hemert, 2011. "Understanding the Subprime Mortgage Crisis," Review of Financial Studies, Society for Financial Studies, vol. 24(6), pages 1848-1880.
  21. Monika Piazzesi & Martin Schneider, 2009. "Momentum Traders in the Housing Market: Survey Evidence and a Search Model," American Economic Review, American Economic Association, vol. 99(2), pages 406-11, May.
  22. Vikrant Vig & Amit Seru & Tomasz Piskorski, 2009. "Securitization and Distressed Loan Renegotiation: Evidence from the Subprime Mortgage Crisis," 2009 Meeting Papers 1169, Society for Economic Dynamics.
  23. Giglio, Stefano & Pathak, Parag & Campbell, John Y., 2011. "Forced Sales and House Prices," Scholarly Articles 9887623, Harvard University Department of Economics.
  24. Benjamin J. Keys & Tanmoy Mukherjee & Amit Seru & Vikrant Vig, 2010. "Did Securitization Lead to Lax Screening? Evidence from Subprime Loans," The Quarterly Journal of Economics, MIT Press, vol. 125(1), pages 307-362, February.
  25. Tim Landvoigt & Monika Piazzesi & Martin Schneider, 2012. "The Housing Market(s) of San Diego," NBER Working Papers 17723, National Bureau of Economic Research, Inc.
  26. Atif R. Mian & Amir Sufi, 2012. "What explains high unemployment? The aggregate demand channel," NBER Working Papers 17830, National Bureau of Economic Research, Inc.
  27. Fernando Ferreira & Joseph Gyourko, 2011. "Anatomy of the Beginning of the Housing Boom: U.S. Neighborhoods and Metropolitan Areas, 1993-2009," NBER Working Papers 17374, National Bureau of Economic Research, Inc.
  28. Eric A. Posner & Luigi Zingales, 2009. "A Loan Modification Approach to the Housing Crisis," American Law and Economics Review, Oxford University Press, vol. 11(2), pages 575-607.
  29. Atif Mian & Amir Sufi & Francesco Trebbi, 2011. "Foreclosures, House Prices, and the Real Economy," NBER Working Papers 16685, National Bureau of Economic Research, Inc.
  30. Rucker, Randal R & Alston, Lee J, 1987. "Farm Failures and Government Intervention: A Case Study of the 1930' s," American Economic Review, American Economic Association, vol. 77(4), pages 724-30, September.
  31. Tomasz Piskorski & Alexei Tchistyi, 2011. "Stochastic House Appreciation and Optimal Mortgage Lending," Review of Financial Studies, Society for Financial Studies, vol. 24(5), pages 1407-1446.
  32. Meyer, Bruce D, 1995. "Natural and Quasi-experiments in Economics," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(2), pages 151-61, April.
  33. Alston, Lee J, 1984. "Farm Foreclosure Moratorium Legislation: A Lesson from the Past," American Economic Review, American Economic Association, vol. 74(3), pages 445-57, June.
  34. Chad Syverson, 2010. "What Determines Productivity?," NBER Working Papers 15712, National Bureau of Economic Research, Inc.
  35. Valerie A. Ramey, 2011. "Can Government Purchases Stimulate the Economy?," Journal of Economic Literature, American Economic Association, vol. 49(3), pages 673-85, September.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ecl:ohidic:2012-20. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.