Loan Servicer Heterogeneity and the Termination of Subprime Mortgages
FRB of St. Louis Working Paper No. 2006-024A
34 Pages Posted: 22 Apr 2006
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: Suggested Citation
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