Topic:The Effect of Negative Equity on Mortgage Default: Evidence From HAMP's Principal Reduction Alternative

Speaker:Stephen H. Shore, Georgia State University

Time:Friday, 20 November, 10:00-11:30

Location:Room 214, Guanghua Building 2

Abstract:

HAMP PRA is a government-sponsored program to reduce the principal balances and monthly mortgage payments of troubled borrowers. We examine the impact of principal forgiveness on borrowers' subsequent mortgage default. The program's rules imply a kink in the relationship between principal forgiveness and a borrower's initial equity level. Our identification strategy exploits the quasiexperimental variation in principal forgiveness generated by this kink using a regression kink design (RKD), which compares the relationship between initial equity and default on either side of the kink. We estimate that HAMP PRA reduced the quarterly default hazard from 3.8% to 3.1%.

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