TY  - JOUR
AU  - Mulligan,Casey B.
TI  - Means-Tested Mortgage Modification: Homes Saved or Income Destroyed?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15281
PY  - 2009
Y2  - August 2009
UR  - http://www.nber.org/papers/w15281
L1  - http://www.nber.org/papers/w15281.pdf
N1  - Author contact info:
Casey B. Mulligan
University of Chicago
Department of Economics
1126 East 59th Street
Chicago, IL  60637
Tel: 773/702-9017
Fax: 773/702-8490
E-Mail: c-mulligan@uchicago.edu
AB  - This paper uses the theories of price discrimination and optimal taxation to investigate effects of underwater mortgages on foreclosures and the incentives to earn income, and the degree to which those effects are shaped by public policy.  I find that the federal government’s means-tested mortgage modification plan creates a massive implicit tax that may be significant even from a macroeconomic perspective.  An alternative of modifying mortgages to maximize lender collections would also feature means tests, but with less effort distortion and perhaps fewer foreclosures.  The paper also considers the consequences of a public policy that left mortgage modification to lenders, subject to a requirement that modification would not be conditioned on borrower income.
ER  -