Holdup by Junior Claimholders: Evidence from the Mortgage Market

Agarwal, Sumit; Amromin, Gene; Ben‐David, Itzhak; Chomsisengphet, Souphala; Zhang, Yan

doi:10.1017/s0022109018000662

Cited by 9 publications

(3 citation statements)

References 35 publications

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“…The factors in vector X include homeowner participation in the foreclosure process, which can help reduce losses, along with credit risk, which lead to an increased risk of over-indebtedness (Melzer and Meltzer, 2017) or holdup issues (Agarwal et al, 2019). A low centrality of the foreclosed house relative to work or government institutions can plausibly influence the search process, thus reducing the probability of matching (Donner, 2020) and influencing the foreclosure discount.…”

Section: Methodsmentioning

confidence: 99%

Mortgage Lending Valuation Bias Under Housing Price Changes and Loan-to-Value Regulations

Reite

2023

Preprint

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Section: Methodsmentioning

confidence: 99%

Mortgage Lending Valuation Bias Under Housing Price Changes and Loan-to-Value Regulations

Reite

2023

Preprint

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“…Consequently, senior creditors may be discouraged to vote in favor of restructuring. Moreover, junior claimants can take advantage of shifts in debtholders’ power at the expense of more senior claimants leading to a possible hold out of liquidations or foreclosure (Agarwal et al., 2019). Therefore, debtor‐friendly legal orientation and efficiency of bankruptcy courts may capture the ability of insolvency systems to mitigate liquidation rates and thus encourage the use of reorganization.…”

Section: Estimationsmentioning

confidence: 99%

Bankruptcy voting process and corporate reorganization

Stef

2022

Bulletin of Econ Res

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This study investigates the main legal determinants of corporate reorganization use. Three legal aspects of bankruptcy voting process were examined, such as the voting right of secured creditors (1), bankruptcy voting rule (2), and court's legal right to overrule creditors' decision (3). Using a sample of 20 countries, our estimations confirm that granting a voting right to secured lenders tends to be associated with more corporate reorganizations. Secured creditors' voting right may send a signal about firm's capacity to recover from financial distress. Such signal can encourage unsecured creditors to support the reorganization plan.

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“…In contrast, policies to extinguish second liens faced insurmountable frictions. In many cases, servicers' incentives were conflicted by servicer ownership of the second liens (Agarwal et al, 2019). More generally, some have argued that mortgage servicers were slow to modify and refinance mortgages because of capacity constraints or problematic incentives in their servicing contracts (Agarwal et al, 2017).…”

Section: Resolving the Institutional Complications Related To The Incmentioning

confidence: 99%

Helping homeowners during the Covid-19 pandemic: Lessons from the Great Recession

Amromin¹,

Dokko²,

Dynan³

2020

CFL

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The Covid-19 public health crisis has sharply reduced the earnings of millions of U.S. households, following the severe curtailment of economic activity needed to contain the spread of the virus. Meanwhile, households continue to confront their ongoing financial obligations. The ability of households to manage these obligations has important consequences for the speed at which the U.S. economy can recover from the current crisis. Households that are wiped out financially in the coming months will not be in a position to strongly resume spending once the virus containment issues have passed. Moreover, a wave of missed payments on mortgages and other types of household debt could propagate through the financial system-weakening financial institutions, unnerving investors, and further prolonging the economic slump. The risk that large numbers of households will lack the liquidity needed to meet their financial obligations is thus an important consideration for policymakers as they seek to mitigate the economic fallout from the Covid-19 pandemic. 1 Federal regulators and Congress have already enacted some policies to provide relief to households struggling to make payments on mortgages and student debt. These measures complement the substantial income support for households and subsidies for businesses in a series of fiscal packages that have already been passed. However, there is growing concern that these measures may not be large, timely, or targeted enough to avoid a substantial scarring of household balance sheets that would inhibit a strong recovery. In this Chicago Fed Letter, we explore lessons from policymakers' efforts to provide assistance to homeowners during the Great Recession of 2007-09. Our goal is to provide insights into the potential role of policy in improving outcomes for mortgage borrowers during the Covid-19 crisis. We come to three broad conclusions: 1. The specific type of assistance to mortgage borrowers must correspond to the nature of the economic shock. In general, payment relief is a more effective way to help struggling mortgage borrowers than debt forgiveness. But the Great Recession era programs that provided modest long-term reductions in required payments are not likely to be the solution in current circumstances that call for quick and sizable liquidity support.

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Holdup by Junior Claimholders: Evidence from the Mortgage Market

Cited by 9 publications

References 35 publications

Mortgage Lending Valuation Bias Under Housing Price Changes and Loan-to-Value Regulations

Mortgage Lending Valuation Bias Under Housing Price Changes and Loan-to-Value Regulations

Bankruptcy voting process and corporate reorganization

Helping homeowners during the Covid-19 pandemic: Lessons from the Great Recession

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