Policy Intervention in Debt Renegotiation: Evidence from Home Affordability Modification Program

We evaluate the effects of the 2009 Home Affordable Modification Program (HAMP) that provided intermediaries with sizeable financial incentives to renegotiate mortgages. HAMP increased intensity of renegotiations and prevented substantial number of foreclosures but reached just one-third of its targeted indebted households. This shortfall was in large part due to low renegotiation intensity of a few large intermediaries and was driven by intermediary-specific factors. Exploiting regional variation in the intensity of program implementation by intermediaries suggests that the program was associated with lower rate of foreclosures, consumer debt delinquencies, house price declines, and an increase in durable spending.

Agarwal, Sumit and Amromin, Gene and Ben-David, Itzhak and Chomsisengphet, Souphala and Piskorski, Tomasz and Seru, Amit, Policy Intervention in Debt Renegotiation: Evidence from the Home Affordable Modification Program (February 15, 2016). Journal of Political Economy, Forthcoming, Fisher College of Business Working Paper No. 2012-03-020, Charles A. Dice Center Working Paper No. 2012-20, Available at SSRN: https://ssrn.com/abstract=2138314 or http://dx.doi.org/10.2139/ssrn.2138314