The Political Economy of Loan Modification

47 Pages Posted: 29 May 2018

See all articles by Sumit Agarwal

Sumit Agarwal

National University of Singapore

Kristopher Gerardi

Federal Reserve Bank of Atlanta

Vincent Yao

Georgia State University - J. Mack Robinson College of Business

Date Written: May 18, 2018

Abstract

This paper documents that mortgage servicers increased modification rates by approximately 8 percent for delinquent loans located in a district whose representative was a member of the Financial Services Committee in the U.S. House of Representatives during the 111th Congress. We document that the difference in modification rates persists after the passage of the Dodd-Frank Act in 2010 and continues through the term of the 112th Congress. The paper's findings are consistent with lenders making politically motivated decisions in their allocation of loan modifications. Furthermore, we find little evidence that these higher modification rates benefited borrowers or the local economy.

Keywords: Political Economy, Financial Crisis, Loan Modification, Mortgages, Dodd-Frank Act

JEL Classification: D1, D72, G01, G2

Suggested Citation

Agarwal, Sumit and Gerardi, Kristopher S. and Yao, Vincent, The Political Economy of Loan Modification (May 18, 2018). Available at SSRN: https://ssrn.com/abstract=3180850 or http://dx.doi.org/10.2139/ssrn.3180850

Sumit Agarwal

National University of Singapore ( email )

15 Kent Ridge Drive
Singapore, 117592
Singapore
8118 9025 (Phone)

HOME PAGE: http://www.ushakrisna.com

Kristopher S. Gerardi

Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States
404-498-8561 (Phone)

HOME PAGE: http://sites.google.com/site/kristophergerardishomepage/

Vincent Yao (Contact Author)

Georgia State University - J. Mack Robinson College of Business ( email )

35 Broad Street
Atlanta, GA 30303-3083
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
72
Abstract Views
495
rank
326,663
PlumX Metrics