Mortgage modification policies slow employment recovery, economists say

Sep 15, 2011 By Meg Sullivan

In a new study, UCLA economists estimate that means-tested mortgage modifications, which significantly reduce mortgage payments to households whose incomes have declined, have raised the unemployment rate by approximately 0.5 percentage points. In the absence of these policies, they say, there would be about 750,000 more jobs filled, and that output and income would be about $140 billion higher than it is.

Means-tested mortgage modifications substantially reduce the cost of staying in a home by reducing mortgage payments, with the payment reduction based on the household's current earnings; this can include cases in which the borrower's is limited to unemployment benefits. These policies, the researchers argue, reduce incentives for workers to relocate to areas with lower unemployment rates and better job-finding prospects.

The findings could help policymakers better tackle the current unemployment problem by highlighting the potentially negative effects of means-tested modifications; policies could instead be directed toward solutions that do not reduce incentives for individuals to move to better labor markets.

Explore further: 3 Qs: Economist makes the case for new quasi-experiments as a way of studying environmental issues

More information: The study is currently a National Bureau of Economic Research working paper and will appear in the fall edition of the Cato Journal.

add to favorites email to friend print save as pdf

Related Stories

New mortgage design would minimize home foreclosures

Jan 19, 2011

With mortgage loan defaults on the rise yet again, two mortgage researchers are proposing a new type of mortgage contract that automatically resets the balance and the monthly payment based on the mortgaged home's market ...

Claiming benefits improves the health of the unemployed

Mar 06, 2009

Unemployment benefits help reduce the negative health-related behaviours often associated with being unemployed. A study published in the open access journal BMC Public Health has found that unemployment benefits recipients are le ...

Most mortgage meltdowns not caused by subprimes

Oct 22, 2010

Subprime mortgages were not the main reason behind the housing crisis that started in 2009 and continues to bedevil the faltering U.S. economy, according to a University of Michigan study.

Recommended for you

Which foods may cost you more due to Calif. drought

Apr 17, 2014

With California experiencing one of its worst droughts on record, grocery shoppers across the country can expect to see a short supply of certain fruits and vegetables in stores, and to pay higher prices ...

Performance measures for CEOs vary greatly, study finds

Apr 16, 2014

As companies file their annual proxy statements with the U.S. Securities and Exchange Commission (SEC) this spring, a new study by Rice University and Cornell University shows just how S&P 500 companies have ...

Investment helps keep transport up to speed

Apr 16, 2014

Greater investment in education and training for employees will be required to meet the future needs of the transport and logistics industry, according to recent reports by Monash University researchers.

User comments : 2

Adjust slider to filter visible comments by rank

Display comments: newest first

rwinners
not rated yet Sep 15, 2011
Who just bought a new Economics Wing at UCLA?
Cin5456
not rated yet Sep 16, 2011
This sounds like myopic hindsight. Where are the figures and percentages? Where is the rest of the story?

This sounds like it came from someone who doesn't want mortgage modifications. Just because jobs dried up in one area doesn't mean they picked up in another area. There has been overall job reduction all over the U.S. as multinationals and huge corporations dump jobs all over. How many failed mortgages will happen because of the 40,000 jobs B of A is cutting?

Moving from the city they have lived in for years is not the answer. The answer is to stop cutting jobs. But multinationals don't see it that way.

And how many home loans are modified for the unemployed? I'd like to see the figures on that. How many unemployed actually still have homes of their own? I would think they were the first to lose their mortgages because of lack of payment.

I hate the idea that people are expected to leave their home towns once they lose their mortgages.

More news stories

Egypt archaeologists find ancient writer's tomb

Egypt's minister of antiquities says a team of Spanish archaeologists has discovered two tombs in the southern part of the country, one of them belonging to a writer and containing a trove of artifacts including reed pens ...