Macroeconomic Effects of Bankruptcy and Foreclosure Policies | Zendy

Kurt Mitman | Zendy

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Macroeconomic Effects of Bankruptcy and Foreclosure Policies

Author(s) -

Kurt Mitman

Publication year - 2016

Publication title -

american economic review

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 16.936

H-Index - 297

eISSN - 1944-7981

pISSN - 0002-8282

DOI - 10.1257/aer.20120512

Subject(s) - foreclosure , bankruptcy , economics , consumer protection act , household debt , balance sheet , debt , monetary economics , loan to value ratio , point (geometry) , actuarial science , mortgage insurance , macroeconomics , finance , casualty insurance , insurance policy , geometry , mathematics

I study the implications of two major debt-relief policies in the United States: the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) and the Home Affordable Refinance Program (HARP). To do so, I develop a model of housing and default that includes relevant dimensions of credit-market policy and captures rich heterogeneity in household balance sheets. The model also explains the observed cross-state variation in consumer default rates. I find that BAPCPA significantly reduced bankruptcy rates, but increased foreclosure rates when house prices fell. HARP reduced foreclosures by 1 percentage point and provided substantial welfare gains to households with high loan-to-value mortgages. (JEL D14, K35, R31)

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