Hamp and the Dynamic Mortgage Default Decision

In this paper I develop and estimate a dynamic model of the household decision to default on a mortgage using data from the Homeowners Affordability Modification Program (HAMP), which reduces delinquent homeowner housing payments to 31 percent of income. I find that HAMP has prevented 550,000 defaults as of June 2013 relative to a scenario where HAMP does not exist, at a cost-per-default prevented of $11,824. Counterfactual experiments varying the target housing payment level of HAMP suggest that raising the payment level to 38% would have increased total defaults by seven percentage points from 18 percent to 25 percent, and decreased program costs by 43 percent.