What Explains Differences in Foreclosure Rates? A Response to Piskorski, Seru, and Vig

16 Pages Posted: 6 May 2010

See all articles by Manuel Adelino

Manuel Adelino

Duke University; Duke Innovation & Entrepreneurship Initiative; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Kristopher Gerardi

Federal Reserve Bank of Atlanta

Paul Willen

Federal Reserve Bank of Boston - Research Department; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: March 16, 2010

Abstract

In this note we discuss the findings in Piskorski, Seru, and Vig (2010), as well as the authors' interpretation of their results. First, we find that small changes to the set of covariates used by PSV significantly reduce the magnitude of the differences in foreclosure rates between securitized and nonsecuritzed loans. Second, we argue that early payment defaults (EPD) are not a valid instrument for the securitization status of the loans and that the empirical implementation chosen by the authors for using EPD is not a valid instrumental variables approach. Finally, we discuss the use of foreclosure rates as a measure of renegotiation and argue that explicitly using modification rates of delinquent mortgages is a better way of studying renegotiation activity. On balance, the evidence in PSV indicates that there are at most small differences in the outcomes of delinquent loans, but whether those differences reflect accounting issues, willingness to renegotiate, or unobserved heterogeneity remains an open question.

JEL Classification: D11, D12, G21

Suggested Citation

Adelino, Manuel and Gerardi, Kristopher S. and Willen, Paul S., What Explains Differences in Foreclosure Rates? A Response to Piskorski, Seru, and Vig (March 16, 2010). FRB of Boston Working Paper No. 10-2, Available at SSRN: https://ssrn.com/abstract=1600753 or http://dx.doi.org/10.2139/ssrn.1600753

Manuel Adelino

Duke University ( email )

Duke Innovation & Entrepreneurship Initiative ( email )

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National Bureau of Economic Research (NBER) ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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Kristopher S. Gerardi

Federal Reserve Bank of Atlanta ( email )

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HOME PAGE: http://sites.google.com/site/kristophergerardishomepage/

Paul S. Willen (Contact Author)

Federal Reserve Bank of Boston - Research Department ( email )

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Boston, MA 02210
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National Bureau of Economic Research (NBER)

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United States

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