Does Loan Renegotiation Differ by Securitization Status? An Empirical Study

47 Pages Posted: 1 Mar 2011

See all articles by Yan Zhang

Yan Zhang

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

Date Written: December 14, 2010

Abstract

This paper investigates whether mortgage loan servicers renegotiate a distressed loan differently depending on whether the loan is held on their own books or by private investors. Using the proprietary mortgage metrics database that has servicer-provided loan renegotiation details, we conduct a comprehensive empirical evaluation of the securitization impact on loan renegotiation. We focus on loan outcome, loan renegotiation frequency, and loan renegotiation effectiveness in influencing outcomes.

We find that non-renegotiated securitized loans have a significantly higher foreclosure rate than similarly situated portfolio loans. We show that servicers actually conduct fewer loan renegotiations for securitized loans. By studying multi-stage transition probabilities, we discover that the self-cure rate and re-default rate are different between securitized loans and portfolio loans. Overall this paper reveals that loan renegotiations, in particular loan outcome, loan renegotiation frequency and effectiveness, do differ by securitization status.

Keywords: Loan Renegotiation, Securitization, Foreclosure, Securitized Loans, Portfolio Loans

JEL Classification: G01, G21

Suggested Citation

Zhang, Yan, Does Loan Renegotiation Differ by Securitization Status? An Empirical Study (December 14, 2010). Available at SSRN: https://ssrn.com/abstract=1773103 or http://dx.doi.org/10.2139/ssrn.1773103

Yan Zhang (Contact Author)

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

400 7th St. SW
Washington, DC 20219
United States
202-6495492 (Phone)

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