The Political Economy of Property Exemption Laws

How Did the US Housing Slump Begin? Role of the 2005 Bankruptcy Reform

“…Historic exemption limits are taken from Hynes et al (2004). The variable movers is the fraction of individuals not born in the state over total population in the states.…”

“…We measure exposure to BAPCPA by the homestead exemption limit for Chapter 7 filings prior to the passage of the Act, since the benefit lost by borrowers in distress as a result of the Act is the exemption they would have been entitled to had they been been allowed to file under Chapter 7. These exemption limits vary from state to state (see Table 2), and depend mainly on exemption limits prevailing in the early 20th century owing to strong inertia in the political process of reforming these limits (Hynes et al (2004)). We use both the absolute value of these exemption limits as well as relative to local housing values and incomes as alternative measures of BAPCPA exposure.…”

Personal Bankruptcy Reform, Credit Availability, and Financial Distress

“…the increase should be higher in states with higher exemption limits, where lenders were more likely not to be repaid in bankruptcy prior the Act. The exemption limits vary widely from state to state ranging from zero to unlimited (see Table 1), and are very persistent and depend mainly on exemption limits prevailing in the early 20th century due to strong inertia in the political process of reforming these limits (Hynes et al (2004)). I also confirm this result in my analysis and show that states with different exemption limits are remarkably similar in characteristics such as income, homeownership, house price growth, education, race, and income inequality.…”

An Economic Theory of Mortgage Redemption Laws

“…Exceptions include Alston (1984), who studied the causes and effects of mortgage foreclosure moratoria (temporary relief from foreclosure) enacted during the Great Depression; Jaffe and Sharp (1996), who discussed foreclosure moratoria as an efficient legislative response to unforeseen economic downturns, given the incompleteness of mortgage contracts; Hynes, Malani, and Posner (2003), who examined the related issue of laws exempting property from bankruptcy proceedings; and Fisher (2006) and Fisher and Yavas (forthcoming), who examine equitable redemption.…”

“…20 See, for example, Alston (1984), who finds evidence for the impact of farm interests, and Hynes, Malani, and Posner (2003), who do not. 21 It would certainly be desirable to obtain an exact match between adoption dates displayed on table 1 and the data, however, this is simply not feasible given available data.…”