Manuel Adelino, Kristopher Gerardi, and Paul S. Willen
Working Paper 2009-17a
Revised April 2010
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Securitization does not explain the reluctance among lenders to renegotiate home mortgages. We focus on seriously delinquent borrowers from 2005 through the third quarter of 2008 and show that servicers renegotiate similarly small fractions of securitized and portfolio loans. The results are robust to several different definitions of renegotiation and hold in subsamples where unobserved heterogeneity is likely to be small. We argue that information issues endemic to home mortgages where lenders negotiate with large numbers of borrowers lead to barriers to renegotiation fundamentally different from those present with other types of debt.
JEL classification: D11, D12, G21
Key words: mortgage, foreclosure, modification, renegotiation
The authors thank John Campbell, Chris Foote, Scott Frame, Anil Kashyap, Chris Mayer, Eric Rosengren, Julio Rotemberg, Amit Seru and seminar audiences at the NBER Capital Markets and the Economy Meeting, the NBER Monetary Economics Meeting, Freddie Mac, Harvard Business School, University of Connecticut, LSE, Brandeis University, Bentley University, University of California, Berkeley, Standford University, University of Virginia, University of Chicago (Booth School of Business), Penn State University, Chicago Fed, AREUEA winter meetings, the SAET meetings in Ischia, ESSET-Gerzensee, the FDIC/FHFA Symposium on credit risk, and the MIT Finance Lunch for thoughtful comments, Kyle Carlson and Suzanne Lorant for editorial help, and the Studienzentrum Gerzensee, where the authors completed this paper, for their generous hospitality. The views expressed here are the authors' and not necessarily those of the Federal Reserve Banks of Atlanta or Boston or the Federal Reserve System. Any remaining errors are the authors' responsibility.
Please address questions regarding content to Manuel Adelino, Graduate Fellow, Research Department, Federal Reserve Bank of Boston, and Department of Economics, MIT, 50 Memorial Drive, E52 458, Cambridge, MA 02142, 617-253-3919, madelino@mit.edu; Kristopher Gerardi, Research Economist and Assistant Policy Adviser, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street, N.E., Atlanta, GA 30309-4470, 404-498-8561, kristopher.gerardi@atl.frb.org; or Paul Willen, Senior Economist and Policy Adviser, Research Department, Federal Reserve Bank of Boston, 600 Atlantic Avenue, Boston, MA 02210, 617-973-3149, paul.willen@bos.frb.org.
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