Holdup by Junior Claimholders: Evidence from the Mortgage Market

47 Pages Posted: 31 Mar 2014 Last revised: 11 Mar 2023

See all articles by Sumit Agarwal

Sumit Agarwal

National University of Singapore

Gene Amromin

Federal Reserve Bank of Chicago

Itzhak Ben-David

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER)

Souphala Chomsisengphet

Government of the United States of America - Office of the Comptroller of the Currency (OCC)

Yan Zhang

Government of the United States of America - Office of the Comptroller of the Currency (OCC)

Multiple version iconThere are 2 versions of this paper

Date Written: March 2014

Abstract

When borrowers are delinquent, senior debtholders prefer liquidation whereas junior debtholders prefer to maintain their option value by delaying resolution or modifying the loan. In the mortgage market, a conflict of interest (“holdup”) arises when servicers of securitized senior liens are also the owners of the junior liens on the same property. We show that holdup servicers are able to delay action on the first-lien mortgage. When they do act, servicers are more likely to choose resolutions that maintain their option value, favoring modification and soft foreclosures over outright foreclosures. Holdup behavior is more likely to result in borrower self-curing.

Suggested Citation

Agarwal, Sumit and Amromin, Gene and Ben-David, Itzhak and Chomsisengphet, Souphala and Zhang, Yan, Holdup by Junior Claimholders: Evidence from the Mortgage Market (March 2014). NBER Working Paper No. w20015, Available at SSRN: https://ssrn.com/abstract=2418130

Sumit Agarwal (Contact Author)

National University of Singapore ( email )

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Gene Amromin

Federal Reserve Bank of Chicago ( email )

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Itzhak Ben-David

Ohio State University (OSU) - Department of Finance ( email )

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National Bureau of Economic Research (NBER) ( email )

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HOME PAGE: http://fisher.osu.edu/fin/faculty/Ben-David/

Souphala Chomsisengphet

Government of the United States of America - Office of the Comptroller of the Currency (OCC) ( email )

400 7th Street SW
Washington, DC 20219
United States

Yan Zhang

Government of the United States of America - Office of the Comptroller of the Currency (OCC) ( email )

400 7th Street SW
Washington, DC 20219
United States

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