Loan Servicer Heterogeneity and the Termination of Subprime Mortgages

FRB of St. Louis Working Paper No. 2006-024A

34 Pages Posted: 22 Apr 2006

See all articles by Anthony Pennington-Cross

Anthony Pennington-Cross

Marquette University - Dept. of Finance

Giang Ho

University of California, Los Angeles (UCLA)

Date Written: April 2006

Abstract

After a mortgage is originated the borrower promises to make scheduled payments to repay the loan. These payments are sent to the loan servicer, who may be the original lender or some other firm. This firm collects the promised payments and distributes the cash flow (payments) to the appropriate investor/lender. A large data set (loan-level) of securitized subprime mortgages is used to examine if individual servicers are associated with systematic differences in mortgage performance (termination). While accounting for unobserved heterogeneity in a competing risk (default and prepay) proportional hazard framework, individual servicers are associated with substantial and economically meaningful impacts on loan termination.

Keywords: Mortgage, Default, Prepayment, Servicer

JEL Classification: G21, G12, L23, L85

Suggested Citation

Pennington-Cross, Anthony N. and Ho, Giang, Loan Servicer Heterogeneity and the Termination of Subprime Mortgages (April 2006). FRB of St. Louis Working Paper No. 2006-024A, Available at SSRN: https://ssrn.com/abstract=897277 or http://dx.doi.org/10.2139/ssrn.897277

Anthony N. Pennington-Cross (Contact Author)

Marquette University - Dept. of Finance ( email )

P.O. Box 1881
Milwaukee, WI 53201-1881
United States

Giang Ho

University of California, Los Angeles (UCLA) ( email )

405 Hilgard Avenue
Box 951361
Los Angeles, CA 90095
United States

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