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: CL&P Blog

Paper on the Role of Securitization in Mortgage Renegotiation

By Jeff Sovern

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Sumit Agarwal and Gene Amromin of the Fed, Itzhak Ben-David of the Ohio State University - Finance Department, Fisher College of Business, Souphala Chomsisengphet of the OCC, and Douglas D. Evanoff, also of the Fed, have written The Role of Securitization in Mortgage Renegotiation. Here's the abstract:

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.

Full post as published by CL&P Blog on January 25, 2011 (boomark / email).