Reducing residential mortgage default: Should policy act before or after home purchases?
We examine two possible approaches to reducing residential mortgage default using a dynamic model of heterogeneous infinitely-lived agents acting optimally subject to uninsurable idiosyncratic earnings shocks and systemic house price shocks. We find higher down payments are very effective in minimiz...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
| Published: |
Public Library of Science (PLoS)
2018-01-01
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| Series: | PLoS ONE |
| Online Access: | http://europepmc.org/articles/PMC6053153?pdf=render |
| _version_ | 1818258464537837568 |
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| author | Yifei Wu Jeffrey H Dorfman |
| author_facet | Yifei Wu Jeffrey H Dorfman |
| author_sort | Yifei Wu |
| collection | DOAJ |
| description | We examine two possible approaches to reducing residential mortgage default using a dynamic model of heterogeneous infinitely-lived agents acting optimally subject to uninsurable idiosyncratic earnings shocks and systemic house price shocks. We find higher down payments are very effective in minimizing residential mortgage foreclosures, even in periods of house price declines and recessions. In contrast, the length of the credit exclusionary period for people who experience bankruptcy or foreclosure has a much smaller impact on mortgage defaults. Thus, it is much more effective to prevent mortgage default before the mortgage closes than to pressure homeowners not to default once they are in financial trouble. This also suggests a major aspect of credit scores and credit policy is non-productive and punitive, harming people in return for little societal gain. |
| first_indexed | 2024-12-12T17:59:58Z |
| format | Article |
| id | doaj.art-1a6908dd6dc54aaeaac6d64df6c6627f |
| institution | Directory Open Access Journal |
| issn | 1932-6203 |
| language | English |
| last_indexed | 2024-12-12T17:59:58Z |
| publishDate | 2018-01-01 |
| publisher | Public Library of Science (PLoS) |
| record_format | Article |
| series | PLoS ONE |
| spelling | doaj.art-1a6908dd6dc54aaeaac6d64df6c6627f2022-12-22T00:16:37ZengPublic Library of Science (PLoS)PLoS ONE1932-62032018-01-01137e020047610.1371/journal.pone.0200476Reducing residential mortgage default: Should policy act before or after home purchases?Yifei WuJeffrey H DorfmanWe examine two possible approaches to reducing residential mortgage default using a dynamic model of heterogeneous infinitely-lived agents acting optimally subject to uninsurable idiosyncratic earnings shocks and systemic house price shocks. We find higher down payments are very effective in minimizing residential mortgage foreclosures, even in periods of house price declines and recessions. In contrast, the length of the credit exclusionary period for people who experience bankruptcy or foreclosure has a much smaller impact on mortgage defaults. Thus, it is much more effective to prevent mortgage default before the mortgage closes than to pressure homeowners not to default once they are in financial trouble. This also suggests a major aspect of credit scores and credit policy is non-productive and punitive, harming people in return for little societal gain.http://europepmc.org/articles/PMC6053153?pdf=render |
| spellingShingle | Yifei Wu Jeffrey H Dorfman Reducing residential mortgage default: Should policy act before or after home purchases? PLoS ONE |
| title | Reducing residential mortgage default: Should policy act before or after home purchases? |
| title_full | Reducing residential mortgage default: Should policy act before or after home purchases? |
| title_fullStr | Reducing residential mortgage default: Should policy act before or after home purchases? |
| title_full_unstemmed | Reducing residential mortgage default: Should policy act before or after home purchases? |
| title_short | Reducing residential mortgage default: Should policy act before or after home purchases? |
| title_sort | reducing residential mortgage default should policy act before or after home purchases |
| url | http://europepmc.org/articles/PMC6053153?pdf=render |
| work_keys_str_mv | AT yifeiwu reducingresidentialmortgagedefaultshouldpolicyactbeforeorafterhomepurchases AT jeffreyhdorfman reducingresidentialmortgagedefaultshouldpolicyactbeforeorafterhomepurchases |