Mandatory Mediation Laws and the Renegotiation of Mortgage Contracts

37 Pages Posted: 27 Aug 2011 Last revised: 5 Feb 2014

See all articles by J. Michael Collins

J. Michael Collins

University of Wisconsin - Madison

Carly Urban

Montana State University - Bozeman - Department of Agricultural Economics and Economics

Date Written: August 23, 2011

Abstract

There is debate over why lenders are unwilling to modify more mortgages, ranging from structural to macroeconomic factors. This paper introduces the information problem that borrowers and lenders face and examines third party mediation as a mechanism to overcome this problem. Mediation offers both borrowers and lenders the opportunity to gain information about the potential for modifying the terms of the loan. Based on a difference in difference analysis of loans in four metropolitan statistical areas before and after at least one county imposed mediation and one did not, mediation policies appear to have positive effects on the rate of loan modifications. The use of mediation in states with judicial foreclosure proceedings may be an effective policy to increase the use of loan modifications and offers evidence that a lack of information may introduce additional barriers to modifications.

Keywords: mortgage foreclosure, mediation

JEL Classification: D12, D10, D18, D04, G21

Suggested Citation

Collins, J. Michael and Urban, Carly, Mandatory Mediation Laws and the Renegotiation of Mortgage Contracts (August 23, 2011). Available at SSRN: https://ssrn.com/abstract=1917410 or http://dx.doi.org/10.2139/ssrn.1917410

J. Michael Collins (Contact Author)

University of Wisconsin - Madison ( email )

United States
6086160369 (Phone)

Carly Urban

Montana State University - Bozeman - Department of Agricultural Economics and Economics ( email )

Bozeman, MT 59717-2920
United States
4069942005 (Phone)

HOME PAGE: http://www.montana.edu/urban

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