Macroeconomic Effects of Bankruptcy and Foreclosure Policies

Kurt Mitman

143 citations0/0 files storedAmerican Economic Review

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Housing Market and Economics Banking stability, regulation, efficiency Corporate Insolvency and Governance

Abstract

I study the implications of two major debt-relief policies in the United States: the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) and the Home Affordable Refinance Program (HARP). To do so, I develop a model of housing and default that includes relevant dimensions of credit-market policy and captures rich heterogeneity in household balance sheets. The model also explains the observed cross-state variation in consumer default rates. I find that BAPCPA significantly reduced bankruptcy rates, but increased foreclosure rates when house prices fell. HARP reduced foreclosures by 1 percentage point and provided substantial welfare gains to households with high loan-to-value mortgages. (JEL D14, K35, R31)

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References

1989Recursive Methods in Economic Dynamics 2011Forced Sales and House Prices 2009Medical Bankruptcy in the United States, 2007: Results of a National Study 2004Consumption and risk sharing over the life cycle 2007A Quantitative Theory of Unsecured Consumer Credit with Risk of Default 2002The Household Bankruptcy Decision 2007Consumer Bankruptcy: A Fresh Start 1997Personal Bankruptcy and Credit Supply and Demand

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2015Housing, Finance, and the Macroeconomy 2017Credit Growth and the Financial Crisis: A New Narrative 2021Do Credit Conditions Move House Prices?2013Leverage and the Foreclosure Crisis 2020What Determines Consumer Financial Distress? Place- and Person-Based Factors 2018Are Income and Credit Scores Highly Correlated?2018Insolvency After the 2005 Bankruptcy Reform

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