Resolving Residential Mortgage Distress; Time to Modify?

• Main Author: Jochen R. Andritzky
• Format: Report
• Language: unknown
• Subjects: Iceland
• Online Access: http://www.imf.org/external/pubs/cat/longres.aspx?sk=42532

In housing crises, high mortgage debt can feed a vicious circle of falling housing prices and declining consumption and incomes, leading to higher mortgage defaults and deeper recessions. In such situations, resolution policies may need to be adapted to help contain negative feedback loops while minimizing overall loan losses and moral hazard. Drawing on recent experiences from Iceland, Ireland, Spain, and the United States, this paper discusses how economic trade-offs affecting mortgage resolution differ in crises. Depending on country circumstances, the economic benefits of temporary forbearance and loan modifications for struggling households could outweigh their costs. Debt;Debt reduction;Cross country analysis;Household consumption;Housing prices;Mortgages;Debt overhang, foreclosure, housing crisis, mortgage distress, loan restructuring, mortgage, household debt, loan, Government Policy and Regulation