Resolving Residential Mortgage Distress: Time to Modify?

Author/Editor: Jochen R. Andritzky
Publication Date: December 17, 2014
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: In housing crises, high mortgage debt can feed a vicious circle of falling housing prices and declining consumption and incomes, leading to higher mortgage defaults and deeper recessions. In such situations, resolution policies may need to be adapted to help contain negative feedback loops while minimizing overall loan losses and moral hazard. Drawing on recent experiences from Iceland, Ireland, Spain, and the United States, this paper discusses how economic trade-offs affecting mortgage resolution differ in crises. Depending on country circumstances, the economic benefits of temporary forbearance and loan modifications for struggling households could outweigh their costs.
Series: Working Paper No. 14/226
Subject(s): Mortgages | Housing prices | Debt | Household consumption | Debt reduction | Cross country analysis

Publication Date: December 17, 2014
ISBN/ISSN: 9781484395745/1018-5941 Format: Paper
Stock No: WPIEA2014226 Pages: 37
US$18.00 (Academic Rate:
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