Professor Atif Mian – Foreclosures: The Real Damage on House Prices and the Economy

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[5 min 32 sec] – In Foreclosures, House Prices, and the Real Economy, UC Berkeley economist Atif Mian and co-authors Amir Sufi and Francesco Trebbi exploit legal differences across states in how mortgage defaults are handled. States in the US are divided into two camps. Some – like Illinois – are judicial, meaning the lender is obligated to go through the court before foreclosing on a home. Others – like California – have no such requirement, making it much easier for banks to foreclose delinquent homes. Exploiting such legal differences across states, the Mian et al study reveals the foreclosures’ negative impact on house prices, residential investment, and durable consumption (purchase of new automobiles).