Loan Buyouts and Foreclosure: Evidence from Ginnie Mae

Abstract

Agency MBS issuers can repurchase delinquent loans from securitization pools at par. I develop a framework in which loss mitigation becomes privately optimal only once the issuer owns the loan, and I study how the timing of buyout eligibility affects loan performance. Exploiting Ginnie Mae's suspension of an early buyout option for FHA-insured mortgages, I find that earlier buyout eligibility reduces foreclosure by 40 percent and increases loan cures by about 45 percent, primarily through forbearance rather than loan modification. For a subset of loans, delayed eligibility postpones effective intervention and leads to irreversible deterioration in loan performance.

Keywords: Loan Buyouts, Securitization, Foreclosure, Forbearance, Loan Modification

JEL Classification: G21, G23, G28, G32