Macroeconomic Effects of Bankruptcy & Foreclosure Policies

89 Pages Posted: 3 Jun 2011 Last revised: 19 Jun 2015

Date Written: June 13, 2015

Abstract

I develop an equilibrium model of housing and default to jointly analyze the effects of bankruptcy and foreclosure policies. Heterogeneous households have access to mortgages and unsecured credit and can default separately on both types of debt. I show that the interaction between foreclosure and bankruptcy decisions is crucial for explaining the observed cross-state correlation between default policies and default rates. I use the model to argue that a major recent reform to bankruptcy reduced bankruptcy rates but increased foreclosure rates, and that the Home Affordable Refinance Program reduced foreclosures during the Great Recession.

Keywords: Bankruptcy, Foreclosure, Housing, Default Risk, Household Debt

JEL Classification: E21, G11, K35, R21

Suggested Citation

Mitman, Kurt, Macroeconomic Effects of Bankruptcy & Foreclosure Policies (June 13, 2015). PIER Working Paper No. 11-015. Available at SSRN: https://ssrn.com/abstract=1857517 or http://dx.doi.org/10.2139/ssrn.1857517

Kurt Mitman (Contact Author)

IIES ( email )

Stockholm, SE-10691
Sweden

HOME PAGE: http://kurtmitman.com

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