The Limited Benefits of Mortgage Renegotiation During the Great Recession

64 Pages Posted: 2 Mar 2017 Last revised: 1 Sep 2022

See all articles by Sanket Korgaonkar

Sanket Korgaonkar

University of Virginia - McIntire School of Commerce

Date Written: October 18, 2021

Abstract

This paper examines investors’ incentives to renegotiate residential mortgages by quantifying their expected gains from modifying delinquent loans. Based on my estimates, investors expected to recover, on average, only about 3.6% more of a delinquent mortgage’s outstanding balance compared to not renegotiating the loan. These estimates display a wide spread; the conditional standard deviation of these expected gains is 13.7%. As the housing market experiences a rapid decline post 2009, the relative expected gains from renegotiation increase as does the rate of loan modification. These findings suggest that insufficient gains to investors reduced their incentive to participate in renegotiations, thus offering one explanation for the low rate of loan modification observed during the onset of the Great Recession.

Keywords: Mortgages, Mortgage Servicing, Securitization, Loan Modifications, Financial Crisis

JEL Classification: G1, G21, D14

Suggested Citation

Korgaonkar, Sanket, The Limited Benefits of Mortgage Renegotiation During the Great Recession (October 18, 2021). Available at SSRN: https://ssrn.com/abstract=2924981 or http://dx.doi.org/10.2139/ssrn.2924981

Sanket Korgaonkar (Contact Author)

University of Virginia - McIntire School of Commerce ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
173
Abstract Views
1,289
rank
243,710
PlumX Metrics