The Effect of Negative Equity on Mortgage Default: Evidence From HAMP's Principal Reduction Alternative

• 成果类型: Article
• 署名作者: Scharlemann, Therese C.; Shore, Stephen H.
• 署名单位: Office of Financial Research; United States Department of the Treasury; University System of Georgia; Georgia State University
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhw034
• 发表日期: 2016
• 页码: 2850
• 关键词: crisis

摘要

The Home Affordable Modification Program's (HAMP's) Principal Reduction Alternative (PRA) is a government-sponsored program to reduce the principal balances and monthly mortgage payments of troubled borrowers. We examine the effect of principal forgiveness on borrowers' subsequent mortgage default. The program's rules imply a kink in the relationship between principal forgiveness and a borrower's initial equity level. Our identification strategy exploits the quasi-experimental variation in principal forgiveness generated by this kink using a regression kink design (RKD), which compares the relationship between initial equity and default on either side of the kink. We estimate that HAMP PRA reduced the quarterly default hazard from 3.8% to 3.1%. (JEL G21, R30)