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Does loan renegotiation differ by securitization status? A transition probability study

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  • Zhang, Yan

Abstract

This paper examines whether securitization has an ex-post effect on residential loan renegotiation. It makes two main contributions to the existing literature. First, this paper evaluates the re-default and self-cure rates of loans using bank-reported loan renegotiation data. Second, it conducts a transition probability study to better understand the re-default and self-cure dynamics by time and previous loan state. I find that previously delinquent portfolio loans are less likely to re-default and more likely to self-cure than comparable securitized loans during the intermediate time frame, but the difference diminishes afterwards. For previously cured loans, portfolio loans and securitized loans have generally similar re-default and self-cure rates over time. This paper emphasizes that it is important to understand the dynamic transition behavior of mortgage loans.

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  • Zhang, Yan, 2013. "Does loan renegotiation differ by securitization status? A transition probability study," Journal of Financial Intermediation, Elsevier, vol. 22(3), pages 513-527.
    • Handle: RePEc:eee:jfinin:v:22:y:2013:i:3:p:513-527
    DOI: 10.1016/j.jfi.2012.11.003
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    1. James N. Conklin & Moussa Diop & Thao Le & Walter D’Lima, 2019. "The Importance of Originator-Servicer Affiliation in Loan Renegotiation," The Journal of Real Estate Finance and Economics, Springer, vol. 59(1), pages 56-89, July.
    2. Milonas, Kristoffer, 2017. "The effect of foreclosure laws on securitization: Evidence from U.S. states," Journal of Financial Stability, Elsevier, vol. 33(C), pages 1-22.
    3. Agarwal, Sumit & Amromin, Gene & Ben-David, Itzhak & Chomsisengphet, Souphala & Zhang, Yan, 2019. "Holdup by Junior Claimholders: Evidence from the Mortgage Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 54(1), pages 247-274, February.
    4. Hibbeln, Martin & Osterkamp, Werner, 2024. "The Impact of Risk Retention on Moral Hazard in the Securitization Market," Journal of Banking & Finance, Elsevier, vol. 163(C).
    5. Kruger, Samuel, 2018. "The effect of mortgage securitization on foreclosure and modification," Journal of Financial Economics, Elsevier, vol. 129(3), pages 586-607.
    6. Xu, Minhong & Xu, Yilan, 2023. "Do non-damaging earthquakes shake mortgage lenders' risk perception?," Journal of Environmental Economics and Management, Elsevier, vol. 117(C).

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