Mortgage modification policies slow employment recovery, economists say

September 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: New mortgage design would minimize home foreclosures

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.

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not rated yet Sep 15, 2011
Who just bought a new Economics Wing at UCLA?
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.

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