Resolving Residential Mortgage Distress: Time to Modify?
December 17, 2014
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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.
Subject: Asset and liability management, Debt relief, Debt service, External debt, Financial institutions, Housing prices, Loans, Mortgages, Prices
Keywords: central bank, Debt overhang, Debt relief, Debt service, due diligence, foreclosure, foreclosure alternative, foreclosure moratorium, foreclosure procedure, foreclosure process, Global, housing crisis, Housing prices, loan counseling, loan modification, loan renegotiation, loan restructuring, Loans, mortgage distress, mortgage workout, Mortgages, negative equity, unsecured debt, WP
Pages:
37
Volume:
2014
DOI:
Issue:
226
Series:
Working Paper No. 2014/226
Stock No:
WPIEA2014226
ISBN:
9781484395745
ISSN:
1018-5941
