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...

This paper provides a theoretical analysis of the efficiency of prepayment penalties in a dynamic competitive lending model with risky borrowers and costly default. When considering improvements in the borrower's creditworthiness as one of the reasons for refinancing mortgages, we show that...

This paper explores the practice of mortgage refinancing in a dynamic competitive lending model with risky borrowers and costly default. We show that the prepayment penalties are welfare improving, and that they are more beneficial to borrowers with higher risk of default. The empirical evidence...

the market interest rate is low. Thus, our analysis provides theoretical evidence that these alternative mortgages, which have recently generated great controversy, can benefit both lenders and borrowers.

We consider the optimal design of mortgage-backed securities (MBS) in a dynamic setting in which a mortgage underwriter with limited liability can engage in costly hidden effort to screen borrowers and can sell loans to investors. We show that (i) the timing of payments to the underwriter is the...

include constraints to limit the loss faced by the underwriter for an early first default. In this more complicated setting, a simple implementation using a CDS and a risk free bond persists.

We show that delinquent loans are serviced differently depending on their securitization status. Conditional on a loan becoming seriously delinquent, we find a significantly lower foreclosure rate associated with loans held by the bank (`portfolio' loans) when compared to similar loans that are...

Assuming full rationality, we characterize the optimal mortgage contract in a continuous time setting with a risky borrower, costly default, a moral hazard problem between the borrower and the lender, and a stochastic house appreciation. We show that many features of subprime lending observed in...

We investigate whether homeowners respond strategically to news of mortgage modification programs. We exploit plausibly exogenous variation in modification policy induced by U.S. state government lawsuits against Countrywide Financial Corporation, which agreed to offer modifications to seriously...

Jiang et al. (2023) find that following recent monetary tightening the U.S. banking system’s market value of assets is $2.2 trillion lower than suggested by their book value, accounting for loan portfolios held to maturity. We illustrate that this decline in banks’ asset values has eroded...