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What explains differences in foreclosure rates? a response to Piskorski, Seru, and Vig

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  • Manuel Adelino
  • Kristopher Gerardi
  • Paul Willen

Abstract

In this note we discuss the findings in Piskorski, Seru, and Vig (2010) as well as the authors' interpretation of their results. First, we find that small changes to the set of covariates used by Piskorski, Seru, and Vig significantly reduce the magnitude of the differences in foreclosure rates between securitized and nonsecuritized loans. Second, we argue that early payment defaults (EPD) are not a valid instrument for the securitization status of the loans and that the empirical implementation chosen by the authors for using EPD is not a valid instrumental variables approach. Finally, we discuss the use of foreclosure rates as a measure of renegotiation and argue that explicitly using modification rates of delinquent mortgages is a better way of studying renegotiation activity. On balance, the evidence in Piskorski, Seru, and Vig indicates that there are at most small differences in the outcomes of delinquent loans, but whether those differences reflect accounting issues, willingness to renegotiate, or unobserved heterogeneity remains an open question.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Atlanta in its series Working Paper with number 2010-08.

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Date of creation: 2010
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Handle: RePEc:fip:fedawp:2010-08

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Cited by:
  1. Giovanni Favara, 2013. "Mortgage Market Concentration, Foreclosures and House Prices," 2013 Meeting Papers 643, Society for Economic Dynamics.
  2. Ronel Elul, 2010. "What have we learned about mortgage default?," Business Review, Federal Reserve Bank of Philadelphia, issue Q4, pages 12-19.

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