Citation:
Abstract:
We measure the causal impact of reductions in benchmark interest rates on the renegotiation and performance of distressed loans, using 2000s subprime mortgages as a laboratory. Subprime borrowers treated with larger benchmark rate reductions benefited from increased debt-renegotiation probabilities and lower debt-service payments. Modification rates were similar among current and delinquent borrowers but higher for real estate investors, highlighting the role of financial acumen in renegotiation. Renegotiations also reduced longer-run foreclosures, but these benefits were offset by treated borrowers who lingered in delinquency. Findings indicate that monetary easing can spur debt-renegotiation but alone may not lead to longer-run curative outcomes.
Code Instructions:
_RunAll_.R
to generate the tables and figures in the paper- The figures and tables will be in the
output-plots
andoutput-tex
folders - The data files in the
data
folder have zero records in accordance with vendor's data sharing agreement, but the files do show the variable names and the class of each column can be viewed withsapply(DT, class)
.