Agarwal, Sumit, Amromin, Gene, Ben-David, Itzhak, Chomsisengphet, Souphala and Evanoff, Douglas D., The Role of Securitization in Mortgage Renegotiation (January 13, 2011). Charles A. Dice Center Working Paper No. 2011-2.
“We study the effects of securitization on post-default renegotiation of residential mortgages over the current financial crisis. Unlike prior studies, we employ unique data that directly observes lender renegotiation actions and covers more than 60% of US mortgage market. Exploiting within-servicer variation in this data, we find that bank-held loans are 26% to 36% more likely to be renegotiated than comparable securitized mortgages (4.2 to 5.7% in absolute terms). Also, modifications of bank-held loans are more efficient: conditional on a modification, bank-held loans have lower post-modification default rate by 9% (3.5% in absolute terms). Our findings support the view that frictions introduced by securitization create a significant challenge to effective renegotiation of residential loans.”
