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http://ssrn.com/abstract=1739915
 
 

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The Role of Securitization in Mortgage Renegotiation


Sumit Agarwal


National University of Singapore

Gene Amromin


Federal Reserve Bank of Chicago

Itzhak Ben-David


Ohio State University - Fisher College of Business, Finance Department; National Bureau of Economic Research (NBER)

Souphala Chomsisengphet


US Department of Treasury - Office of the Comptroller of the Currency (OCC)

Douglas D. Evanoff


Federal Reserve Bank of Chicago

March 2011

Fisher College of Business Working Paper No. 2011-03-002
Charles A. Dice Center Working Paper No. 2011-2
FRB of Chicago Working Paper No. 2011-02

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 observes lender renegotiation actions and covers more than 60% of US mortgage market. Exploiting within-servicer variation in this 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 rate 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.

Number of Pages in PDF File: 48

Keywords: Financial Crisis, Loss Mitigation, Mortgage Crisis, Securitization, Lenders, Servicers, Liquidation, Modification, Repayment, Refinance, Default, Delinquency, Borrower, Interest Rates, Household Finance, Credit, Housing, FICO Score, Leverage, LTV, Loan Modiccation, Mortgage, GSE, HAMP, Loan Term

JEL Classification: D1, D8, G1, G2

working papers series





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Date posted: January 17, 2011 ; Last revised: March 14, 2011

Suggested Citation

Agarwal, Sumit and Amromin, Gene and Ben-David, Itzhak and Chomsisengphet, Souphala and Evanoff, Douglas D., The Role of Securitization in Mortgage Renegotiation (March 2011). Charles A. Dice Center Working Paper No. 2011-2; FRB of Chicago Working Paper No. 2011-02. Available at SSRN: http://ssrn.com/abstract=1739915 or http://dx.doi.org/10.2139/ssrn.1739915

Contact Information

Sumit Agarwal
National University of Singapore ( email )
15 Kent Ridge Drive
Singapore, 117592
Singapore
8118 9025 (Phone)
HOME PAGE: http://www.ushakrisna.com
Gene Amromin
Federal Reserve Bank of Chicago ( email )
230 South LaSalle Street
230 S. LaSalle
Chicago, IL 60604
United States
3123225368 (Phone)
3123226011 (Fax)
Itzhak Ben-David (Contact Author)
Ohio State University - Fisher College of Business, Finance Department ( email )
2100 Neil Avenue
Fisher 700D
Columbus, OH 43210-1144
United States
773 988 1353 (Phone)
HOME PAGE: http://fisher.osu.edu/fin/faculty/Ben-David/index.htm

National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
HOME PAGE: http://fisher.osu.edu/fin/faculty/Ben-David/
Souphala Chomsisengphet
US Department of Treasury - Office of the Comptroller of the Currency (OCC) ( email )
400 7th Street, SW
Washington, DC 20219
United States
202-649-5533 (Phone)
Douglas D. Evanoff
Federal Reserve Bank of Chicago ( email )
230 South LaSalle Street
Chicago, IL 60604
United States
312-322-5814 (Phone)
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