Securitization and Distressed Loan Renegotiation: Evidence from the Subprime Mortgage Crisis
Columbia Business School - Finance and Economics
University of Chicago - Booth School of Business
London Business School
April 15, 2010
Chicago Booth School of Business Research Paper No. 09-02
AFA 2010 Atlanta Meetings Paper
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 bankheld 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.
Number of Pages in PDF File: 57
Keywords: Securitization, renegotiation, bargaining, servicing, incentives, subprime, crisis, defaults, mortgages
JEL Classification: G21
Date posted: December 31, 2008 ; Last revised: August 20, 2011
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