Servicer distress and mortgage renegotiation /

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Bibliographic Details
Author / Creator:Lu, Chenfei, author.
Ann Arbor : ProQuest Dissertations & Theses, 2016
Description:1 electronic resource (61 pages)
Format: E-Resource Dissertations
Local Note:School code: 0330
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Other authors / contributors:University of Chicago. degree granting institution.
Notes:Advisors: Amir Sufi; Amit Seru Committee members: Gregor Matvos; Kelly Shue.
Dissertation Abstracts International, Volume: 77-12(E), Section: A.
Summary:We argue the financial health of lenders affects their renegotiation decisions. We connect proprietary data on mortgage loans and renegotiation outcomes to credit-default-swap data to investigate how the distress of lenders in late 2008 affected renegotiation outcomes. We exploit each lender's differential exposure to house-price shocks in regions outside the location of a distressed loan to account for unobservable shocks that may drive renegotiation outcomes. We show that during the peak of the financial crisis, more distressed mortgage lenders were more likely to foreclose on and less likely to modify troubled loans. A one-standard-deviation increase in lender distress in late 2008 was associated with a 3.6- to 13-percentage-point increase in the probability of foreclosure and a 3.0- to 4.7-percentage-point decrease in the probability of modification within one quarter. Evidence on short sales and time in foreclosure are consistent with the view that distressed banks change their renegotiation behavior to increase short-term financial health. Our findings suggest policies that seek to enhance renegotiation activity in times of economic distress should also consider the health of intermediaries engaged in such activity.