The Performance of New Private-Label Mortgage Loan Modifications after 2009

54 Pages Posted: 6 Jul 2012

See all articles by Arthur Acolin

Arthur Acolin

University of Washington - College of Built Environments

Ren S. Essene

Independent

Min Hwang

George Washington University - Department of Finance

Jacob Liebschutz

Harvard University - Harvard Kennedy School (HKS)

Patricia A. McCoy

Boston College Law School

Jessica Russell

Independent

Susan M. Wachter

University of Pennsylvania - Wharton School, Department of Real Estate ; University of Pennsylvania - Finance Department

Date Written: May 31, 2012

Abstract

This paper presents summary statistics and a preliminary analysis of the success rate of loan modifications made in 2010 and January 2011 to residential mortgages securitized in private-label residential mortgage-backed securities. We find that these more recent private-label loan modifications had a higher overall success rate, compared to similar modifications made in earlier years. Consistent with prior literature, having a fixed-rate mortgage, a prime mortgage, a higher Fair Isaac & Company (FICO) credit score, and/or a lower interest rate at origination were positively correlated with lower redefault rates post-modification. Borrowers with interest-only and teaser-rate loans performed slightly better than other borrowers after receiving loan modifications. Similarly, modifications of purchase loans did worse not only than plain vanilla refinance loans, but also worse than debt consolidation and cash out refinance loans. Modifications of private-label mortgages in the four “sand states” – Arizona, California, Florida, and Nevada – did better than modifications in other parts of the United States, although the difference was small. Surprisingly, modifications of fully documented loans performed worse, while modified no-documentation loans performed best. Finally, we confirm that capitalizations of arrears performed worse than interest rate reductions and principal modifications, with the latter appearing to be the most effective.

Keywords: mortgage, loan modification

JEL Classification: D12, D18, G28, G21, K29

Suggested Citation

Acolin, Arthur and Essene, Ren S. and Hwang, Min and Liebschutz, Jacob and McCoy, Patricia Ann and Russell, Jessica and Wachter, Susan M., The Performance of New Private-Label Mortgage Loan Modifications after 2009 (May 31, 2012). Available at SSRN: https://ssrn.com/abstract=2101463 or http://dx.doi.org/10.2139/ssrn.2101463

Arthur Acolin

University of Washington - College of Built Environments ( email )

224 Gould Hall
Box 355726
Seattle, WA 98195
United States

Ren S. Essene

Independent

No Address Available

Min Hwang

George Washington University - Department of Finance ( email )

2023 G Street
Washington, DC 20052
United States

Jacob Liebschutz

Harvard University - Harvard Kennedy School (HKS) ( email )

Patricia Ann McCoy (Contact Author)

Boston College Law School ( email )

885 Centre Street
Newton, MA 02459-1163
United States

Jessica Russell

Independent

No Address Available

Susan M. Wachter

University of Pennsylvania - Wharton School, Department of Real Estate ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104-6330
United States
215-898-6355 (Phone)

HOME PAGE: http://real.wharton.upenn.edu/~wachter/index.html

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

HOME PAGE: http://real.wharton.upenn.edu/~wachter/index.html

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