Mortgage Modification and Strategic Behavior: A Contrarian Interpretation of the Countrywide Financial Corporation Settlement

Authors

Gregory S. Crespi, Southern Methodist University, Dedman School of LawFollow

Abstract

Christopher Mayer, Edward Morrison, Thomas Piskorski and Arpit Gupta of Columbia University have recently published in the Law and Finance eJournal a comprehensive study demonstrating the significant impacts on strategic default rates of the widely publicized Countrywide Financial Corporation settlement of 2008. While their study is comprehensive and carefully done, their implicit assumption that strategic defaults are something to be discouraged rather than encouraged, a position that I have criticized in my earlier work, undercuts the usefulness of their work for policy guidance. From their perspective the Countrywide settlement provides a cautionary tale about difficult trade-offs to be faced in loan modification policy design, whereas I regard it instead as providing some encouragement regarding loan modification initiatives.

Document Type

Article

Keywords

mortgage modification

Recommended Citation

Gregory S. Crespi, Mortgage Modification and Strategic Behavior: A Contrarian Interpretation of the Countrywide Financial Corporation Settlement (2011)