Securitization and distressed loan renegotiation: Evidence from the subprime mortage crisis
Journal
Journal of Financial Economics
Subject
Finance
Publishing details
Publication Year
2010
Abstract
We examine whether securitization impacts renegotiation decisions of loan servicers, focusing on their decision to foreclose a delinquent loan. Conditional on a loan becoming seriously delinquent, we find a significantly lower foreclosure rate associated with bank-held loans when compared to similar securitized loans: across various specifications and origination vintages, the foreclosure rate of delinquent bank-held loans is 3% to 7% lower in absolute terms (13% to 32% in relative terms). There is a substantial heterogeneity in these effects with large effects among borrowers with better credit quality and small effects among lower quality borrowers. A quasi-experiment that exploits a plausibly exogenous variation in securitization status of a delinquent loan confirms these results.
Keywords
Securitization; Renegotiation; Incentives; Crisis; Default
Publication Research Centre
Institute of Finance and Accounting
Available on ECCH
No
