Mortgage Modification and Strategic Behavior: A Contrarian Reading of the Countrywide Financial Corporation Settlement
Gregory S. Crespi
Southern Methodist University - Dedman School of Law
May 23, 2011
SMU Dedman School of Law Legal Studies Research Paper No. 80
Christopher Mayer, Edward Morrison, Thomas Piskorski and Arpit Gupta of Columbia University have recently published in the Law and Finance eJournal a comprehensive study demonstrating the significant impacts on strategic default rates of the widely publicized Countrywide Financial Corporation settlement of 2008. While their study is a solid and convincing descriptive effort, their implicit assumption that strategic defaults are something to be discouraged rather than encouraged, a position that I have criticized in my earlier work, undercuts the usefulness of their work for policy guidance. From their perspective the Countrywide settlement provides a cautionary tale about difficult trade-offs to be faced in loan modification policy design, whereas I regard it instead as providing some encouragement regarding loan modification initiatives.
Number of Pages in PDF File: 7
Date posted: May 25, 2011