Financially Constrained Mortgage Servicers

84 Pages Posted: 6 Nov 2017 Last revised: 14 Oct 2019

See all articles by Darren Aiello

Darren Aiello

Brigham Young University - Marriott School

Date Written: October 14, 2019


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 Mortgage Servicers (October 14, 2019). Available at SSRN: or

Darren Aiello (Contact Author)

Brigham Young University - Marriott School ( email )

United States


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