A Loan Modification Approach to the Housing Crisis

Posted: 25 Jan 2010

See all articles by Eric A. Posner

Eric A. Posner

University of Chicago - Law School

Luigi Zingales

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: Fall 2009

Abstract

The housing crisis threatens to destroy hundreds of billions of dollars of value by causing homeowners with negative equity to walk away from their houses. We advocate a legal reform that would allow homeowners to reduce principal while giving mortgage holders an equity interest. Such a plan would give homeowners an incentive to keep or resell their homes, thus reducing the market value loss of homes while protecting the effective value of creditors’ interests. Two further elements of the plan are that it uses prices based on the average house price in a particular ZIP code; and it is automated.

Keywords: G21, R31

Suggested Citation

Posner, Eric A. and Zingales, Luigi, A Loan Modification Approach to the Housing Crisis (Fall 2009). American Law and Economics Review, Vol. 11, Issue 2, pp. 575-607, 2009. Available at SSRN: https://ssrn.com/abstract=1540381 or http://dx.doi.org/ahp019

Eric A. Posner (Contact Author)

University of Chicago - Law School ( email )

1111 E. 60th St.
Chicago, IL 60637
United States
773-702-0425 (Phone)
773-702-0730 (Fax)

HOME PAGE: http://www.law.uchicago.edu/faculty/posner-e/

Luigi Zingales

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-3196 (Phone)
773-834-2081 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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