The role of securitization in mortgage renegotiation

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

Journal of Financial Economics, 2011, vol. 102, issue 3, 559-578

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 26–36% more likely to be renegotiated than comparable securitized mortgages (4.2–5.7% in absolute terms). Also, modifications of bank-held loans are more efficient: conditional on a modification, bank-held loans have 9% lower post-modification default rates (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. We also provide evidence supporting the affordability focus of recent policy actions, such as the Home Affordability Modification Program.

Keywords: Loan modifications; Financial crisis; Household finance; Mortgages; Securitization (search for similar items in EconPapers)
JEL-codes: D1 D8 G1 G2 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (89)

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Working Paper: The Role of Securitization in Mortgage Renegotiation (2011)
Working Paper: The role of securitization in mortgage renegotiation (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:102:y:2011:i:3:p:559-578

DOI: 10.1016/j.jfineco.2011.07.005

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