I Promise To Pay

43 Pages Posted: 29 Jun 2017 Last revised: 2 Oct 2018

Joshua Mitts

Columbia Law School

Date Written: October 2, 2018

Abstract

Consumers are more likely to keep a repayment promise they make themselves. When a scheduling conflict prevents a borrower from attending a mortgage closing, a Power of Attorney (POA) empowers a third party to promise that the borrower will repay the loan. On a matched sample of POA and non-POA loans, and comparing within-borrower and within-property, I link POAs to greater delinquency and foreclosure. POAs are uncorrelated with cash flow shocks but reflect reduced promise-keeping upon undergoing financial distress. This association vanishes for originator-servicer loans, suggesting financial intermediation plays a role in consumer lending.

Keywords: consumer, promise, mortgage, default, power of attorney

JEL Classification: D12, D18, K12, G21, H31, R20

Suggested Citation

Mitts, Joshua, I Promise To Pay (October 2, 2018). Columbia Law and Economics Working Paper No. 579. Available at SSRN: https://ssrn.com/abstract=2994192 or http://dx.doi.org/10.2139/ssrn.2994192

Joshua Mitts (Contact Author)

Columbia Law School ( email )

435 West 116th Street
New York, NY 10025
United States

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