The role of securitization in mortgage renegotiation

Sumit Agarwal, Gene Amromin, Itzhak Ben-David, Souphala Chomsisengphet and Douglas Evanoff

No WP-2011-02, Working Paper Series from Federal Reserve Bank of Chicago

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.

Keywords: Mortgage loans; Asset-backed financing; Securities; Mortgages (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-ban, nep-cba and nep-ure
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Citations: View citations in EconPapers (80)

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Related works:
Journal Article: The role of securitization in mortgage renegotiation (2011)
Working Paper: The Role of Securitization in Mortgage Renegotiation (2011)
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