Working Paper: CEPR ID: DP11043
Authors: Kurt Mitman
Abstract: I study the implications of two major debt-relief policies in the US: the Bankruptcy Abuse and Consumer Protection Act (BAPCPA) and the Home Affordable Refinance Program (HARP). To do so, I develop a model of housing and default that includes relevant dimensions of credit-market policy and captures rich heterogeneity in household balance sheets. The model also explains the observed cross-state variation in consumer default rates. I find that BAPCPA significantly reduced bankruptcy rates, but increased foreclosure rates when house prices fell. HARP reduced foreclosures by one percentage point and provided substantial welfare gains to households with high loan-to-value mortgages.
Keywords: bankruptcy; default risk; foreclosure; household debt; housing
JEL Codes: E21; G11; K35; R21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| BAPCPA (K35) | Bankruptcy Rates (K35) |
| BAPCPA (K35) | Foreclosure Rates (G21) |
| HARP (Y10) | Foreclosure Rates (G21) |
| HARP (Y10) | Bankruptcy Rates (K35) |
| Bankruptcy Rates (K35) | Foreclosure Rates (G21) |