Securitization and distressed loan renegotiation: Evidence from the subprime mortgage crisis

Tomasz Piskorski, Amit Seru and Vikrant Vig

Journal of Financial Economics, 2010, vol. 97, issue 3, 369-397

Abstract: We examine whether securitization impacts renegotiation decisions of loan servicers, focusing on their decision to foreclose a delinquent loan. Conditional on a loan becoming seriously delinquent, we find a significantly lower foreclosure rate associated with bank-held loans when compared to similar securitized loans: across various specifications and origination vintages, the foreclosure rate of delinquent bank-held loans is 3% to 7% lower in absolute terms (13% to 32% in relative terms). There is a substantial heterogeneity in these effects with large effects among borrowers with better credit quality and small effects among lower quality borrowers. A quasi-experiment that exploits a plausibly exogenous variation in securitization status of a delinquent loan confirms these results.

Keywords: Securitization; Renegotiation; Incentives; Crisis; Defaults (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (170)

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Working Paper: Securitization and Distressed Loan Renegotiation: Evidence from the Subprime Mortgage Crisis (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:97:y:2010:i:3:p:369-397

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