Mortgage Foreclosure and Consumer Bankruptcy
Saturday, Jan. 7, 2017 7:30 PM – 9:30 PM
- Chair: Nancy Wallace, University of California-Berkeley
From Delinquency to Foreclosure: A Model of Loan Workouts
AbstractIn this contribution, we investigate whether there is a place for a reorganization process in the presence of costly financial distress and foreclosure for commercial real estate portfolio loans. Assuming rational behavior of borrowers and lenders, we propose a model of mortgage default with stochastic property value appreciation extended to reconcile the fact that commercial real estate properties in real life have many ways of dealing with financial distress rather than resorting to foreclosure immediately upon delinquency. We do this by deriving closed form formulas for a single name structural model of delinquency and foreclosure under a generalization of both the first passage approach and the excursion approach and by adapting our work to the problematic observed in commercial real estate.
Walmart and Urban Land Prices: Friend or Foe?
AbstractUsing a spatial difference-in-differences research design, this paper examined the effect of a new Walmart store on nearby U.S. urban land prices and found that, within one-quarter mile of a new Walmart store locale, land prices increased by almost 39% over the four-year development time period (from site negotiation to the store opening) compared with land located from one to three miles from the new store site. The analysis found that land prices increased almost geometrically over the development period as information leakage implied that a new store would actually be built and that demand for nearby land would increase. Examining the open date, rather than the development period, this investigation also found that land prices within one-quarter mile of the new store locale increased approximately 26% within three years after the open date compared with land located from one to three miles and that sold within three years before the store open date. The analysis also found that commercial land sales, compared with residential land sales, were instrumental in driving the price effect.
How Does Consumer Bankruptcy Protection Impact Household Outcomes?
AbstractChapter 7 bankruptcy protection provides more than $100 billion in debt relief each year, yet its impact on consumers remains unclear. Using unique hand-collected data from individual bankruptcy petitions, I employ a regression discontinuity design to estimate the effect of Chapter 7 on subsequent household investment behavior and financial performance. I find that Chapter 7 protection increases the probability of the filer (i) creating a new business, (ii) obtaining secured lending, (iii) becoming a homeowner, and (iv) avoiding home foreclosure. Additional tests suggest that although Chapter 7 protects individuals in a variety of ways, the above findings arise because of debt relief.
- G3 - Corporate Finance and Governance
- R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location