Impact of Information Asymmetry and Servicer Incentives on Foreclosure of Securitized Mortgages

Abstract

In this paper I examine how servicer characteristics affect foreclosure rates of delinquent securitized mortgages. Using a sample of mortgages originated by IndyMac Bank and Countrywide Home Loan Servicing that underwent a change in servicer during the financial crisis period, I first show using a difference-in-difference methodology that the servicer has a significant effect on foreclosure rates. Consistent with the idea that information asymmetry affect foreclosure rates, I find a significantly lower foreclosure rate among mortgages where the originator also acts as servicer. Finally, foreclosure rates are ceteris paribus higher for servicers that experienced high loan growth in the past, which suggests that servicer capacity constraints affected foreclosure rates.

Keywords: Securitization, Foreclosure, Information Asymmetry, Servicer

JEL Classification: G21, G28, G33