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Securitization and Distressed Loan Renegotiation: Evidence from the Subprime Mortgage Crisis (Piskorski T., Seru A., Vig V.)

Bank Lending Financial Crises Mortgage

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 bankheld 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.
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Libref/ Piskorski T., Seru A., Vig V. (2010) “Securitization and Distressed Loan Renegotiation: Evidence from the Subprime Mortgage Crisis”, Chicago Booth School of Business Research Paper No. 09-02, pp. 1-57
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