Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/70541
Authors: 
Agarwal, Sumit
Amromin, Gene
Ben-David, Itzhak
Chomsisengphet, Souphala
Evanoff, Douglas D.
Year of Publication: 
2011
Series/Report no.: 
Working Paper, Federal Reserve Bank of Chicago 2011-02
Abstract: 
We study the effects of securitization on renegotiation of distressed residential mortgages over the current financial crisis. Unlike prior studies, we employ unique data that directly observe lender renegotiation actions and cover more than 60% of the U.S. mortgage market. Exploiting within-servicer variation in these 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 rates 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.
Subjects: 
loan modifications
financial crisis
household finance
mortgages
securitization
JEL: 
D1
D8
G1
G2
Document Type: 
Working Paper

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