Tag: negative equity

  • What’s Eating Todd Zywicki?

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    Adam Levitin

    It's no secret that there's no love lost between Todd Zywicki and Elizabeth Warren.   But Todd's latest salvo in this feud is simply filled with inaccuracies.

    Todd goes after Elizabeth for (1) her medical bankruptcy research, (2) the Two-Income Trap, and (3) the treatment of strategic defaults in Congressional Oversight Panel reports.  Todd's charges in (1) and (2) are just rewarmings of his past critiques of Elizabeth's work and of Meghan McArdle's botched hatchet job of Elizabeth in the Atlantic for which she was taken to the woodshed by numerous observers (see also here and here, for example).

    But what about the Congressional Oversight Panel's treatment of strategic defaults? Here, Todd's claim is demonstrably false.

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  • Getting Rid of Nonrecourse Mortgages?

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    Adam Levitin

    It's interesting to look at some of the reader comments to the NY Times article about the rich being more likely to default on their mortgages.  A lot of them are aghast that a mortgage might not be full recourse–that one can walk away and have no personal liability.  What happened to one's word being their bond, honor, etc?  

    Since the onset of the mortgage crisis, some commentators (starting with Martin Feldstein in 2008) have been discovering to their horror that a lot of mortgage lending is nonrecourse.  They think this situation is an invitation to moral hazard and argue that we should do away with nonrecourse mortgages and otherwise punish strategic defaulters (without ever saying how we identify a strategic default–not everyone who walks away from an underwater property is a strategic defaulter…)  Putting aside the issue that a lot of mortgages are recourse, I don't think these commentators have fully thought through the implications of doing so.  

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  • Is Redefault Risk Preventing Mortgage Loan Mods?

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    Adam Levitin

    There's a very interesting new study on mortgage loan modifications out from the Boston Federal Reserve staff.  This sort of study is long-overdue and from an academic standpoint, there's a lot I really like about this study.  But the study is going to get a lot of policy attention, and I think it's important to point out some of the problems with the study that limit its ability to serve as a policy guide.  

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  • The Role of Recourse in Foreclosures

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    Adam Levitin

    Martin Feldstein has been pushing a mortgage bailout proposal that has been getting some undeserved attention (see here and here, e.g.).  Feldstein gets  (here, and here)
    how central negative equity is to the economic crisis.  Homeowners with
    negative equity have a reduced incentive to stay in their home if the
    mortgage is burdensome.  Negative equity fuels foreclosures, which in
    turn force down housing prices, setting off a downward spiral.
    Feldstein is right to focus on negative equity as a key issue for
    housing market stabilization. The problem is in his solution–it is based on a few erroneous factual premises, all of which could have been discovered with very limited Google searches. 

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