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The role of securitization in mortgage renegotiation

Author

Listed:
  • Sumit Agarwal
  • Eugene Amromin
  • Itzhak Ben-David
  • Souphala Chomsisengphet
  • Douglas D. Evanoff

Abstract

We study the effects of securitization on renegotiation of distressed residential mortgages over the current financial crisis. Unlike prior studies, we employ unique data that directly observe lender renegotiation actions and cover more than 60% of the U.S. mortgage market. Exploiting within-servicer variation in these 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 rates 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

  • Sumit Agarwal & Eugene Amromin & Itzhak Ben-David & Souphala Chomsisengphet & Douglas D. Evanoff, 2011. "The role of securitization in mortgage renegotiation," Working Paper Series WP-2011-02, Federal Reserve Bank of Chicago.
  • Handle: RePEc:fip:fedhwp:wp-2011-02
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    References listed on IDEAS

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    More about this item

    Keywords

    Mortgage loans ; Asset-backed financing ; Securities ; Mortgages;

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services

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