Whatever happened to evidence based economics. In today’s NBER release we learn this about mortgage remodification programs:
A difference-in-difference strategy that exploits variation in program eligibility criteria reveals that the program generated an increase in the intensity of renegotiations while adversely affecting effectiveness of renegotiations performed outside the program. Renegotiations induced by the program resulted in a modest reduction in rate of foreclosures but did not alter the rate of house price decline, durable consumption, or employment in regions with higher exposure to the program. The overall impact of
the program will be substantially limited since it will induce renegotiations that will reach just one-third of its targeted 3 to 4 million indebted households.
So, providing incentives to some providers to renegotiate home loans reduces the incentive for people outside the program to do so (I have a GREAT story about that but unfortunately am not legally allowed to report it here). And the program had little impact in foreclosures and did nothing for house prices (I don’t believe that they “need” to increase, I am just reporting this because preventing falling prices was an explicit policy goal), or the broader economy in general. Read the paper here (gated). I look forward to the “party of science” reporting truthfully on that during their big party this week. Maybe they’ll get some tips from Mr. Ryan.
