Financially Constrained Servicers and Aggressive Foreclosures

74 Pages Posted: 6 Nov 2017 Last revised: 8 Dec 2018

See all articles by Darren Aiello

Darren Aiello

Brigham Young University - Marriott School

Date Written: December 7, 2018

Abstract

Financially constrained mortgage servicers destroyed substantial MBS investor value during the financial crisis through their management of delinquent mortgages. Servicers are obligated to advance to investors monthly payments missed by borrowers. This paper shows that, to minimize this obligation to extend financing to distressed borrowers, constrained servicers aggressively pursued foreclosures and modifications at the expense of investors, borrowers, and future mortgage performance. IV regressions suggest that servicers' financial constraints caused 440,712 additional foreclosures. On average, servicers' financial constraints were responsible for 20.51% of the total investor value destroyed per defaulted loan-causing aggregate investor value destruction of $84 billion.

JEL Classification: G21

Suggested Citation

Aiello, Darren, Financially Constrained Servicers and Aggressive Foreclosures (December 7, 2018). Available at SSRN: https://ssrn.com/abstract=3063513 or http://dx.doi.org/10.2139/ssrn.3063513

Darren Aiello (Contact Author)

Brigham Young University - Marriott School ( email )

United States

HOME PAGE: http://darrenaiello.com

Register to save articles to
your library

Register

Paper statistics

Downloads
154
rank
186,015
Abstract Views
820
PlumX Metrics