IDEAS home Printed from https://ideas.repec.org/p/ecl/ohidic/2011-2.html
   My bibliography  Save this paper

The Role of Securitization in Mortgage Renegotiation

Author

Listed:
  • Agarwal, Sumit

    (Federal Reserve Bank of Chicago)

  • Amromin, Gene

    (Federal Reserve Bank of Chicago)

  • Ben-David, Itzhak

    (Ohio State University)

  • Chomsisengphet, Souphala

    (Office of the Comptroller of Currency)

  • Evanoff, Douglas D.

    (Federal Reserve Bank of Chicago)

Abstract

We study the effects of securitization on post-default renegotiation of residential mortgages over the current financial crisis. Unlike prior studies, we employ unique data that directly observes lender renegotiation actions and covers more than 60% of US mortgage market. Exploiting within-servicer variation in this data, we find that bank-held loans are 26% to 36% more likely to be renegotiated than comparable securitized mortgages (4.2 to 5.7% in absolute terms). Also, modifications of bank-held loans are more efficient: conditional on a modification bank-held loans have lower post-modification default rate by 9% (3.5% in absolute terms). Our findings support the view that frictions introduced by securitization create a significant challenge to effective renegotiation of residential loans.

Suggested Citation

  • Agarwal, Sumit & Amromin, Gene & Ben-David, Itzhak & Chomsisengphet, Souphala & Evanoff, Douglas D., 2011. "The Role of Securitization in Mortgage Renegotiation," Working Paper Series 2011-2, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    • Handle: RePEc:ecl:ohidic:2011-2
    as

    Download full text from publisher

    File URL: http://fisher.osu.edu/supplements/10/10471/2011-2.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Pennacchi, George G, 1988. " Loan Sales and the Cost of Bank Capital," Journal of Finance, American Finance Association, vol. 43(2), pages 375-396, June.
    2. Michael A. Stegman & Roberto G. Quercia & Janneke Ratcliffe & Lei Ding & Walter R. Davis, 2007. "Preventive servicing is good for business and affordable homeownership policy," Housing Policy Debate, Taylor & Francis Journals, vol. 18(2), pages 243-278, January.
    3. Christopher Foote & Kristopher Gerardi & Lorenz Goette & Paul Willen, 2010. "Reducing Foreclosures: No Easy Answers," NBER Chapters, in: NBER Macroeconomics Annual 2009, Volume 24, pages 89-138, National Bureau of Economic Research, Inc.
    4. Eric A. Posner & Luigi Zingales, 2009. "A Loan Modification Approach to the Housing Crisis," American Law and Economics Review, Oxford University Press, vol. 11(2), pages 575-607.
    5. Andrew Haughwout & Ebiere Okah & Joseph Tracy, 2016. "Second Chances: Subprime Mortgage Modification and Redefault," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(4), pages 771-793, June.
    6. 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.
    7. Gorton, Gary B. & Pennacchi, George G., 1995. "Banks and loan sales Marketing nonmarketable assets," Journal of Monetary Economics, Elsevier, vol. 35(3), pages 389-411, June.
    8. Christopher Mayer & Karen Pence & Shane M. Sherlund, 2009. "The Rise in Mortgage Defaults," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 27-50, Winter.
    9. 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.
    10. Andra C. Ghent, 2011. "Securitization and Mortgage Renegotiation: Evidence from the Great Depression," Review of Financial Studies, Society for Financial Studies, vol. 24(6), pages 1814-1847.
    11. John Y. Campbell & Stefano Giglio & Parag Pathak, 2011. "Forced Sales and House Prices," American Economic Review, American Economic Association, vol. 101(5), pages 2108-2131, August.
    12. Lawrence R. Cordell & Karen E. Dynan & Andreas Lehnert & J. Nellie Liang & Eileen Mauskopf, 2009. "Designing loan modifications to address the mortgage crisis and the making home affordable program," Finance and Economics Discussion Series 2009-43, Board of Governors of the Federal Reserve System (U.S.).
    13. 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.
    14. Dan Magder, 2009. "Mortgage Loan Modifications: Program Incentives and Restructuring Design," Working Paper Series WP09-13, Peterson Institute for International Economics.
    15. 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.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Agarwal, Sumit & Zhang, Yunqi, 2018. "Effects of government bailouts on mortgage modification," Journal of Banking & Finance, Elsevier, vol. 93(C), pages 54-70.
    2. 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.
    3. Giovanni Favara & Mariassunta Giannetti, 2017. "Forced Asset Sales and the Concentration of Outstanding Debt: Evidence from the Mortgage Market," Journal of Finance, American Finance Association, vol. 72(3), pages 1081-1118, June.
    4. Kruger, Samuel, 2018. "The effect of mortgage securitization on foreclosure and modification," Journal of Financial Economics, Elsevier, vol. 129(3), pages 586-607.
    5. Gene Amromin & Jennifer Huang & Clemens Sialm & Edward Zhong, 2010. "Complex mortgages," Working Paper Series WP-2010-17, Federal Reserve Bank of Chicago.
    6. Sumit Agarwal & Gene Amromin & Itzhak Ben-David & Souphala Chomsisengphet & Tomasz Piskorski & Amit Seru, 2017. "Policy Intervention in Debt Renegotiation: Evidence from the Home Affordable Modification Program," Journal of Political Economy, University of Chicago Press, vol. 125(3), pages 654-712.
    7. Sumit Agarwal & Itzhak Ben-David & Vincent Yao, 2015. "Collateral Valuation and Borrower Financial Constraints: Evidence from the Residential Real Estate Market," Management Science, INFORMS, vol. 61(9), pages 2220-2240, September.
    8. Milonas, Kristoffer, 2017. "The effect of foreclosure laws on securitization: Evidence from U.S. states," Journal of Financial Stability, Elsevier, vol. 33(C), pages 1-22.
    9. Fernando Ferreira & Joseph Gyourko, 2011. "Anatomy of the Beginning of the Housing Boom: U.S. Neighborhoods and Metropolitan Areas, 1993-2009," NBER Working Papers 17374, National Bureau of Economic Research, Inc.
    10. Pagès, Henri, 2013. "Bank monitoring incentives and optimal ABS," Journal of Financial Intermediation, Elsevier, vol. 22(1), pages 30-54.
    11. You Suk Kim & Wenli Li & Hanming Fang, 2016. "The Dynamics of Subprime Adjustable-Rate Mortgage Default: A Structural Estimation," 2016 Meeting Papers 400, Society for Economic Dynamics.
    12. John Y. Campbell, 2013. "Mortgage Market Design," Review of Finance, European Finance Association, vol. 17(1), pages 1-33.
    13. Benjamin J. Keys & Tomasz Piskorski & Amit Seru & Vikrant Vig, 2012. "Mortgage Financing in the Housing Boom and Bust," NBER Chapters, in: Housing and the Financial Crisis, pages 143-204, National Bureau of Economic Research, Inc.
    14. Zhang, Yan, 2013. "Does loan renegotiation differ by securitization status? A transition probability study," Journal of Financial Intermediation, Elsevier, vol. 22(3), pages 513-527.
    15. Tomasz Piskorski & Amit Seru, 2018. "Debt Relief and Slow Recovery: A Decade after Lehman," NBER Working Papers 25403, National Bureau of Economic Research, Inc.
    16. Kau, James B. & Keenan, Donald C. & Lyubimov, Constantine & Carlos Slawson, V., 2011. "Subprime mortgage default," Journal of Urban Economics, Elsevier, vol. 70(2-3), pages 75-87, September.
    17. Fernando Ferreira & Joseph Gyourko, 2015. "A New Look at the U.S. Foreclosure Crisis: Panel Data Evidence of Prime and Subprime Borrowers from 1997 to 2012," NBER Working Papers 21261, National Bureau of Economic Research, Inc.
    18. Bhardwaj, Geetesh & Sengupta, Rajdeep, 2014. "Subprime cohorts and loan performance," Journal of Banking & Finance, Elsevier, vol. 41(C), pages 236-252.
    19. Chan, Sewin & Gedal, Michael & Been, Vicki & Haughwout, Andrew, 2013. "The role of neighborhood characteristics in mortgage default risk: Evidence from New York City," Journal of Housing Economics, Elsevier, vol. 22(2), pages 100-118.
    20. Maximilian Schmeiser & Matthew Gross, 2016. "The Determinants of Subprime Mortgage Performance Following a Loan Modification," The Journal of Real Estate Finance and Economics, Springer, vol. 52(1), pages 1-27, January.

    More about this item

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ecl:ohidic:2011-2. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: https://edirc.repec.org/data/cdohsus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.