Real Estate : Columbia Business School on the Housing Crisis

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A New Proposal for Loan Modifications (PDF) Professors Mayer, Morrison, and Piskorski discuss the incentives and legal issues surrounding loan modifications.

Securitization and Distressed Loan Renegotiation: Evidence from the Subprime Mortgage Crisis (PDF) Professors Tomasz Piskorski (Columbia), Amit Seru (University of Chicago), and Vikrant Vig (London Business School) argue that a failure to renegotiate securitized loans may have substantially contributed to the recent surge in foreclosures.

House Prices, Interest Rates, and Mortgage Market Meltdown (PDF) Dean Glenn Hubbard and Prof. Chris Mayer propose bolstering housing prices will improve the intent of the Treasury’s bailout.

Stochastic House Appreciation and Optimal Mortgage Lending (PDF) Professors Piskorski and Tchistyi show that many features of subprime lending observed in practice are consistent with rational behavior. It is optimal for lenders to help borrowers who were in good standing before the crisis by reducing their mortgage balance and interest rate.

Note on Mortgage Market Meltdown and House Prices (PDF) This note examines the impact of the recent mortgage market meltdown on the relative cost of owning a home.

Columbia Business School’s thought leadership on issues related to the U.S. housing crisis has gained the attention of the media and policymakers alike. This page is a guide to related background, analyses and opinions.

January 7, 2009

Loan Modification Proposal

by Christopher Mayer, Edward Morrison, and Tomasz Piskorski

“A New Proposal for Loan Modifications” (1/07/2009; full proposal, PDF)

This proposal aims to stem foreclosures through loan modifications by targeting privately securitized mortgages, which are at the core of the housing crisis, accounting for more than 50 percent of foreclosure starts. We estimate that the plan would prevent nearly one million foreclosures over three years, at a cost of no more than $10.7 billion.

This proposal, coupled with Prof. Mayer and Dean Glenn Hubbard's earlier proposal (below) for the federal government to reduce mortgage rates, is part of a two-pronged approach to stabilize the housing market and prevent foreclosures.
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December 17, 2008

House Prices and Interest Rates

by R. Glenn Hubbard and Christopher Mayer

In the paper, we demonstrate that house prices are strongly related to mortgage rates, using evidence from the U.S. and countries around the world. We also argue that house prices are already at or below where they should be based on fundamentals. Finally, the paper provides more detailed arguments in favor of our original housing policy proposal.
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October 2, 2008

The Original Hubbard Mayer Proposal

by R. Glenn Hubbard and Christopher Mayer

In this original proposal, we recommended allowing all residential mortgages on primary residences to be refinanced into 30-year fixed-rate mortgages at 5.25% (matching the lowest mortgage rate in the past 30 years), and placed with Fannie Mae and Freddie Mac.

Our plan would cover any existing homeowner or new purchaser of a home who was able to document their income, show that they can afford the mortgage that they are taking out, and document that they are residing in their home as a permanent residence.
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