Securitization and Distressed Loan Renegotiation: Evidence from the Subprime Mortgage Crisis
AbstractWe show that delinquent loans are serviced differently depending on their securitization status. Conditional on a loan becoming seriously delinquent, we find a significantly lower foreclosure rate associated with loans held by the bank (`portfolio' loans) when compared to similar loans that are securitized; the likelihood of a portfolio loan default is lower in relative terms by about 20-30% for all the loans and about 30-50% for loans of better credit quality. This evidence supports the view that, relative to servicers of securitized loans, servicers of portfolio loans undertook actions that resulted in lower rates of foreclosure. Our findings suggest that securitization imposes significant renegotiation costs and a failure to renegotiate securitized loans may have substantially contributed to the recent surge in foreclosures. A policy intervention that allows for renegotiation of securitized loans could result in significant welfare gains.
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2009 Meeting Papers with number 1169.
Date of creation: 2009
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- Piskorski, Tomasz & Seru, Amit & Vig, Vikrant, 2010. "Securitization and distressed loan renegotiation: Evidence from the subprime mortgage crisis," Journal of Financial Economics, Elsevier, vol. 97(3), pages 369-397, September.
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