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The Role of Securitization in Mortgage Renegotiation

Listed author(s):
  • 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)

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.

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File URL: http://fisher.osu.edu/supplements/10/10471/2011-2.pdf
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Paper provided by Ohio State University, Charles A. Dice Center for Research in Financial Economics in its series Working Paper Series with number 2011-2.

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Date of creation: Jan 2011
Handle: RePEc:ecl:ohidic:2011-2
Contact details of provider: Phone: (614) 292-8449
Web page: http://www.cob.ohio-state.edu/fin/dice/list.htm
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  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.
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  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.
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  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.).
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  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.
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