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Post date: Aug 21, 2011 3:42:44 PM
Recently the Wall Street Journal covered my article with Lee Ohanian. You can see it here:
Wall Street Journal Mentions Herkenhoff-Ohanian (2011)
This article upset many people as evidenced by the comments. However, the general complaint was that there are no jobs elsewhere and modifications help people keep their homes. Firstly, the shift in the Beveridge curve (which plots vacancies against unemployment) means that there are more vacancies per unemployed person. One potential explanation for the lack of employment is that people are not moving to take advantage of these vacancies (vacancies is often used to explain the job opening rate, or the rate at which employers are posting help-wanted ads). In the old days when the conference board was measuring this statistic, now it is measured by the BLS using their Job Opening and Labor Turnover Survey (JOLTS).
Secondly, as evidenced by the 60% redefault rates, people are not actually keeping their homes! It is just an artificial and costly delay. I think it would be better to issue modifications based the loan to house price ratio (the loan to value ratio is technical terms). This will eliminate the link between poor labor market outcomes (reduced income/unemployment) and modifications.
Key Question: What kind of frictions can generate this shifted Beveridge Curve? As I have mentioned before, reduced mobility is perhaps one reason.
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