A Crisis of Missed Opportunities? Foreclosure Costs and Mortgage Modification During the Great Recession

Forthcoming, Review of Financial Studies

71 Pages Posted: 31 Aug 2016 Last revised: 26 May 2020

See all articles by Stuart A. Gabriel

Stuart A. Gabriel

University of California, Los Angeles - Anderson School of Management

Matteo Iacoviello

Board of Governors of the Federal Reserve System

Chandler Lutz

Securities and Exchange Commission

Date Written: March 15, 2020

Abstract

We investigate the impact of Great Recession policies in California that substantially increased lender pecuniary and time costs of foreclosure. We estimate that the California Foreclosure Prevention Laws (CFPLs) prevented 250,000 California foreclosures (a 20% reduction) and created $300 billion in housing wealth. The CFPLS boosted mortgage modifications and reduced borrower transitions into default. They also mitigated foreclosure externalities via increased maintenance spending on homes that entered foreclosure. The CFPLs had minimal adverse side effects on the availability of mortgage credit for new borrowers. Altogether, findings suggest that policy interventions that keep borrowers in their homes may be broadly beneficial during times of widespread housing distress.

Keywords: Foreclosure Crisis, Mortgage Forbearance, Mortgage Modification, Great Recession

JEL Classification: E52, E58, R20, R30

Suggested Citation

Gabriel, Stuart A. and Iacoviello, Matteo and Lutz, Chandler, A Crisis of Missed Opportunities? Foreclosure Costs and Mortgage Modification During the Great Recession (March 15, 2020). Forthcoming, Review of Financial Studies , Available at SSRN: https://ssrn.com/abstract=2831830 or http://dx.doi.org/10.2139/ssrn.2831830

Stuart A. Gabriel (Contact Author)

University of California, Los Angeles - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States
310-825-2922 (Phone)
310-206-5455 (Fax)

HOME PAGE: http://www.anderson.ucla.edu

Matteo Iacoviello

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Chandler Lutz

Securities and Exchange Commission ( email )

100 F Street, NE
Washington, DC 20549
United States

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