Asymmetric Information in Loan Renegotiation: The Importance of Originator-Servicer Affiliation

Posted: 2 Mar 2016 Last revised: 31 Aug 2017

See all articles by James Conklin

James Conklin

University of Georgia

Moussa Diop

University of Southern California

Walter D'Lima

Old Dominion University

Date Written: October 4, 2016

Abstract

We present evidence that affiliation between the debt renegotiator and the originator represents a mechanism to reduce asymmetric information inherent in debt renegotiation. We hypothesize that affiliation affords servicers lower-cost access to borrower information, thus improving their ability to implement efficient debt restructuring. Consistent with this hypothesis, affiliation affects the likelihood, form, and effectiveness of modifications in a large sample of delinquent securitized mortgages. In a significant departure from the recent literature, we show that the additional information available through affiliation is "hard" in nature. As banks disintegrate origination and servicing, information critical for debt renegotiation will be lost.

Keywords: Information Asymmetry, Mortgage Default, Debt Renegotiation, Servicing, Securitization, Mortgage Redefault, Non-agency MBS

JEL Classification: G21, R2, R3

Suggested Citation

Conklin, James and Diop, Moussa and D'Lima, Walter, Asymmetric Information in Loan Renegotiation: The Importance of Originator-Servicer Affiliation (October 4, 2016). Available at SSRN: https://ssrn.com/abstract=2740653 or http://dx.doi.org/10.2139/ssrn.2740653

James Conklin

University of Georgia ( email )

Athens, GA 30602-6254
United States

Moussa Diop (Contact Author)

University of Southern California ( email )

Sol Price School of Public Policy
RGL 315
Los Angeles, CA 90089
United States
(213)821-0467 (Phone)

Walter D'Lima

Old Dominion University ( email )

Norfolk, VA 23529-0222
United States

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