econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 12 October 2015

Do Large-Scale Refinancing Programs Reduce Mortgage Defaults?

from the Congressional Budget Office

In March 2012, the Federal Housing Administration (FHA) announced that it would reduce the premiums it charges to participate in its streamline refinance (SLR) program. The reduction in premiums was substantial: A borrower with a $200,000 mortgage and a loan-to-value (LTV) ratio greater than 95 percent could expect to save $3,480 in up-front premiums and $1,200 per year in annual premiums. However, only borrowers whose mortgages FHA endorsed by May 31, 2009, were eligible for the reduced premiums.

Therefore, borrowers with endorsement dates on opposite sides of the cutoff date faced different financial incentives to participate in the SLR program. This retroactive eligibility rule creates a natural regression discontinuity (RD) design with which to measure how reduced mortgage payments affect borrower behavior. The results suggest that reduced mortgage payments lower default rates substantially and that the reduced fees more than doubled the number of SLRs between July 2012 and December 2013. We estimate that the policy will prevent more than 35,000 defaults of FHA-insured mortgages.

Policymakers may wish to reduce mortgage defaults for several reasons. First, defaults cause losses to taxpayers through the mortgage guarantee programs of FHA, Fannie Mae, and Freddie Mac.2 Reducing default losses was one of FHA's stated goals in announcing reduced fees on SLRs (Department of Housing and Urban Development [HUD], 2012). Second, defaults and subsequent foreclosures not only have adverse spillover effects on nearby properties and neighborhoods but also entail significant deadweight losses. For instance, Anenberg and Kung (2014) estimate that listing a foreclosed property for sale reduces home prices within a third of a mile by 1.5 percent, although Gerardi and others (2012) find that such effects last no more than one year. Ellen, Lacoe, and Sharygin (2013) estimate that an additional foreclosure leads to a 1 percent increase in crime in the block of the foreclosed property. Considering many of these effects and the administrative costs associated with a foreclosure, HUD in 2010 estimated the deadweight loss associated with a foreclosure to be approximately $50,000. Third, defaults and foreclosures may reduce real economic activity by reducing the value of households' assets, in turn reducing consumer demand. For instance, Mian, Sufi, and Trebbi (2014) estimate that between 2007 and 2009, foreclosures accounted for one-third of the decline in house prices and one-fifth of the decline in residential investment and auto sales.

[click on image below to continue reading]

Source: https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/workingpaper/50871-FHA.pdf

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical News Post Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.



You can also comment using Facebook directly using he comment block below.





Econintersect Contributors


search_box

Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.


Take a look at what is going on inside of Econintersect.com
Main Home
Analysis Blog
The Destruction of the Existing Workforce
Finance and Growth: The Direction of Causality
News Blog
Grassroots Terrorism In 2017: A Small But Stubborn Threat
Earthquake Risk: Spotlight On Canada
Federal Income Taxes By Income Bracket
Infographic Of The Day: Guide To Caring For Your First Dog
Early Headlines: Migrants Incr. 41 Pct This Century, Women's March Largest Ever?, GOP ACA Disarray, Trump Hit With Ethics Complaint, Trump Back To '29?, May And Nieto To Visit Trump And More
New Seasonal Outlook Updates from NOAA and JAMSTEC Disagree Dramatically
Earnings And Economic Reports: Week Starting 23 January 2017
France And Germany Differ Starkly On Strong Leaders
Most Flags Combine Red, White And Blue
Electroconvulsive Therapy: A History Of Controversy, But Also Of Help
Super Bowl Ad Prices Doubled In A Decade
What We Read Today 21 January 2017
People Who Laughed At TRUMP...and Said He Would Never Be President
Investing Blog
The Week Ahead: Political Uncertainty And Market Volatility
Investors: How Not To Lose Everything And Die Broke
Opinion Blog
Retailing In America: Bricks And Torture
Economics, Society, And The Environment: What's Wrong With This Picture?
Precious Metals Blog
Four Catalysts Drive Gold And Silver For 2017
Live Markets
20Jan2017 Market Close: U.S. Stocks Were Up But Off Their Highs Of The Session, Crude Prices Continue To Climb, Next Week May Be Volatile
Amazon Books & More






.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government





























 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2017 Econintersect LLC - all rights reserved