Liquidity vs. Wealth in Household Debt Obligations: Evidence from Housing Policy in the Great Recession /
Ganong, Peter.
Liquidity vs. Wealth in Household Debt Obligations: Evidence from Housing Policy in the Great Recession / Peter Ganong, Pascal Noel. - Cambridge, Mass. National Bureau of Economic Research 2018. - 1 online resource: illustrations (black and white); - NBER working paper series no. w24964 . - Working Paper Series (National Bureau of Economic Research) no. w24964. .
August 2018.
We use variation in mortgage modifications to disentangle the impact of reducing long-term obligations with no change in short-term payments ("wealth"), and reducing short-term payments with approximately no change in long-term obligations ("liquidity"). Using regression discontinuity and difference-in-differences research designs with administrative data measuring default and consumption, we find that principal reductions that increase housing wealth without affecting liquidity have no effect, while maturity extensions that increase only liquidity have large effects. Our results suggest that liquidity drives borrower default and consumption decisions, and that distressed debt restructurings can be redesigned with substantial gains to borrowers, lenders, and taxpayers.
System requirements: Adobe [Acrobat] Reader required for PDF files.
Mode of access: World Wide Web.
Liquidity vs. Wealth in Household Debt Obligations: Evidence from Housing Policy in the Great Recession / Peter Ganong, Pascal Noel. - Cambridge, Mass. National Bureau of Economic Research 2018. - 1 online resource: illustrations (black and white); - NBER working paper series no. w24964 . - Working Paper Series (National Bureau of Economic Research) no. w24964. .
August 2018.
We use variation in mortgage modifications to disentangle the impact of reducing long-term obligations with no change in short-term payments ("wealth"), and reducing short-term payments with approximately no change in long-term obligations ("liquidity"). Using regression discontinuity and difference-in-differences research designs with administrative data measuring default and consumption, we find that principal reductions that increase housing wealth without affecting liquidity have no effect, while maturity extensions that increase only liquidity have large effects. Our results suggest that liquidity drives borrower default and consumption decisions, and that distressed debt restructurings can be redesigned with substantial gains to borrowers, lenders, and taxpayers.
System requirements: Adobe [Acrobat] Reader required for PDF files.
Mode of access: World Wide Web.