The Roles of Borrower Private Information and Mortgage Relief Design in Foreclosure Prevention
(Job Market Paper)
New version uploaded on November 15, 2023. Primary changes relate to robustness (Section 6) and welfare analysis (Section 7).
Abstract: I study frictions that prevent banks and loan servicers from granting debt relief to struggling borrowers in the U.S. residential mortgage market. I contribute to a growing literature on selection markets in industrial organization by exploring how asymmetric information, transaction costs, and aid generosity associated with granting debt relief affect mortgage foreclosure outcomes. To disentangle these mechanisms, I introduce a structural model in which banks decide whether to offer debt relief to potentially distressed borrowers when processing relief is costly and borrowers hold private information about their financial well-being. Relative to full information, banks reduce the probability of granting relief to deter financially healthy borrowers from pretending to be distressed, leading to more foreclosures in equilibrium. I use my model to estimate the impact of the Federal Home Affordable Modification Program (HAMP) using the outcomes of mortgages that were originated before the 2008 financial crisis. I find that HAMP incentive payments offset bank costs enough to increase relief disbursement and to decrease realized foreclosures by 3%, or 200,000 properties nationally, over the decade from 2007 to 2016. Despite this, information frictions increased total foreclosures by 14%, or the equivalent of 1.1 million properties and $110 billion of lost value over the same time period. Finally, I find that the level of borrower relief prescribed under HAMP was insufficient for preventing 86% of foreclosures, highlighting the extent of borrower distress arising during 2008. Beyond malpractice in mortgage origination, my findings illustrate how debt relief design and the financial intermediary behavior contributed to the widespread occurrence of foreclosure in the United States.
Regulation and market structure: An investigation of Airbnb’s decline in San Francisco
Undergoing major revisions Fall 2023
Abstract: This paper explores the effects of municipal regulations of home-sharing websites on market structure and prices. I build on existing theoretical work on peer-to-peer markets to explain why entry regulation increases concentration and prices by disproportionately driving low capacity suppliers to exit. I then study the 2018 enforcement of regulations in San Francisco following the city's settlement with Airbnb using a difference-in-differences (DD) approach. I find that single-listing hosts are 19.7 percent less likely to list following regulation compared to a 7.8 percent decline for multi-listing hosts. I also find that nightly pre-tax prices increase by $9.25 and cleaning fees rise by $1.91.
Borrower composition, servicing behavior and state-level regulation in the U.S. foreclosure crisis
The speed to accuracy trade-off in borrower debt relief