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Securitization and distressed loan renegotiation: Evidence from the subprime mortgage crisis

2010; Elsevier BV; Volume: 97; Issue: 3 Linguagem: Inglês

10.1016/j.jfineco.2010.04.003

1879-2774

Tomasz Piskorski, Amit Seru, Vikrant Vig,

Credit Risk and Financial Regulations

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.