The Importance of Originator-Servicer Affiliation in Loan Renegotiation
Journal of Real Estate Finance and Economics, July 2019, Volume 59, Issue 1, pp 56–8
Posted: 30 Aug 2019
Date Written: July 2019
This paper presents evidence that affiliation between the mortgage servicer and the originator provides a mechanism to reduce information frictions inherent in debt renegotiation. We find that originator-servicer affiliation increases the likelihood of modification by 10%-23T using a large sample of delinquent securitized non-agency mortgages. Post-modification, affiliated loans are also 7.3% more likely to not return to severe delinquency within 12 months. further examination reveals that affiliation affords servicers lower-cost access to borrower and loan information, thus improving their ability to implement effective debt restructuring strategies. In the absence of standardized information transmission between originators and servicers, information critical for debt renegotiation will be lost as banks disintegrate origination and servicing.
Keywords: Information Asymmetry; Mortgage Default; Debt Renegotiation; Servicing; Securitization; Mortgage Redefault; Non-Agnecy Mbs
JEL Classification: G21; R2; R3
Suggested Citation: Suggested Citation