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Securitization and distressed loan renegotiation: Evidence from the subprime mortgage crisis

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  • Piskorski, Tomasz
  • Seru, Amit
  • Vig, Vikrant

Abstract

We examine whether securitization impacts renegotiation decisions of loan servicers, focusing on their decision to foreclose a delinquent loan. Conditional on a loan becoming seriously delinquent, we find a significantly lower foreclosure rate associated with bank-held loans when compared to similar securitized loans: across various specifications and origination vintages, the foreclosure rate of delinquent bank-held loans is 3% to 7% lower in absolute terms (13% to 32% in relative terms). There is a substantial heterogeneity in these effects with large effects among borrowers with better credit quality and small effects among lower quality borrowers. A quasi-experiment that exploits a plausibly exogenous variation in securitization status of a delinquent loan confirms these results.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Economics.

Volume (Year): 97 (2010)
Issue (Month): 3 (September)
Pages: 369-397

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Handle: RePEc:eee:jfinec:v:97:y:2010:i:3:p:369-397

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Web page: http://www.elsevier.com/locate/inca/505576

Related research

Keywords: Securitization Renegotiation Incentives Crisis Defaults;

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