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

55 Pages Posted: 14 Apr 2016

See all articles by Dimuthu Ratnadiwakara

Dimuthu Ratnadiwakara

University of Houston - C.T. Bauer College of Business, Students

Date Written: April 12, 2016

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

Suggested Citation

Ratnadiwakara, Dimuthu, Impact of Information Asymmetry and Servicer Incentives on Foreclosure of Securitized Mortgages (April 12, 2016). Available at SSRN: https://ssrn.com/abstract=2763761 or http://dx.doi.org/10.2139/ssrn.2763761

Dimuthu Ratnadiwakara (Contact Author)

University of Houston - C.T. Bauer College of Business, Students ( email )

Houston, TX
United States
713-743-4937 (Phone)

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