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Identifying the Effect of Securitization on Foreclosure and Modification Rates Using Early Payment Defaults

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  • Manuel Adelino

    ()

  • Kristopher Gerardi

    ()

  • Paul Willen

    ()

Abstract

This paper develops and estimates an instrumental variables strategy for identifying the causal effect of securitization on the incidence of mortgage modification and foreclosure based on the early payment default analysis performed by Piskorsi et al. (J Financ Econ 97:360–397, 2010 ). Estimation results show that securitized mortgages are more likely to be modified and less likely to be foreclosed on by servicers. These results are consistent with the interpretation in Adelino et al. ( 2009 ) that low modification rates are not the result of contract frictions inherent in the mortgage securitization process. Copyright Springer Science+Business Media New York (outside the USA) 2014

Suggested Citation

  • Manuel Adelino & Kristopher Gerardi & Paul Willen, 2014. "Identifying the Effect of Securitization on Foreclosure and Modification Rates Using Early Payment Defaults," The Journal of Real Estate Finance and Economics, Springer, vol. 49(3), pages 352-378, October.
  • Handle: RePEc:kap:jrefec:v:49:y:2014:i:3:p:352-378
    DOI: 10.1007/s11146-013-9433-0
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    References listed on IDEAS

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    1. Gerardi, Kristopher & Lambie-Hanson, Lauren & Willen, Paul S., 2013. "Do borrower rights improve borrower outcomes? Evidence from the foreclosure process," Journal of Urban Economics, Elsevier, vol. 73(1), pages 1-17.
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    3. Adelino, Manuel & Gerardi, Kristopher & Willen, Paul S., 2013. "Why don't Lenders renegotiate more home mortgages? Redefaults, self-cures and securitization," Journal of Monetary Economics, Elsevier, vol. 60(7), pages 835-853.
    4. Atif Mian & Amir Sufi, 2009. "The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis," The Quarterly Journal of Economics, Oxford University Press, vol. 124(4), pages 1449-1496.
    5. Gary B. Gorton & Nicholas S. Souleles, 2007. "Special Purpose Vehicles and Securitization," NBER Chapters, in: The Risks of Financial Institutions, pages 549-602, National Bureau of Economic Research, Inc.
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    8. Agarwal, Sumit & Amromin, Gene & Ben-David, Itzhak & Chomsisengphet, Souphala & Evanoff, Douglas D., 2011. "The role of securitization in mortgage renegotiation," Journal of Financial Economics, Elsevier, vol. 102(3), pages 559-578.
    9. 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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    11. Benjamin J. Keys & Tanmoy Mukherjee & Amit Seru & Vikrant Vig, 2010. "Did Securitization Lead to Lax Screening? Evidence from Subprime Loans," The Quarterly Journal of Economics, Oxford University Press, vol. 125(1), pages 307-362.
    12. John Krainer & Elizabeth Laderman, 2009. "Mortgage loan securitization and relative loan performance," Working Paper Series 2009-22, Federal Reserve Bank of San Francisco.
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    Cited by:

    1. James N. Conklin & Moussa Diop & Thao Le & Walter D’Lima, 2019. "The Importance of Originator-Servicer Affiliation in Loan Renegotiation," The Journal of Real Estate Finance and Economics, Springer, vol. 59(1), pages 56-89, July.
    2. David Downs & Pisun (Tracy) Xu, 2015. "Commercial Real Estate, Distress and Financial Resolution: Portfolio Lending Versus Securitization," The Journal of Real Estate Finance and Economics, Springer, vol. 51(2), pages 254-287, August.
    3. Yilin Huang & Taylor D. Nadauld, 2019. "A Direct Test of Agency Theories of Debt: Evidence from Residential Mortgage-Backed Securities," Management Science, INFORMS, vol. 65(4), pages 1792-1809, April.
    4. Fishback, Price & Fleitas, Sebastian & Rose, Jonathan & Snowden, Ken, 2020. "Collateral Damage: The Impact of Foreclosures on New Home Mortgage Lending in the 1930s," The Journal of Economic History, Cambridge University Press, vol. 80(3), pages 853-885, September.

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    More about this item

    Keywords

    Early payment default; Foreclosure; Mortgage; Securitization; D11; D12; G21;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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