TY  - JOUR
AU  - Adelino,Manuel
AU  - Gerardi,Kristopher
AU  - Willen,Paul S.
TI  - Why Don't Lenders Renegotiate More Home Mortgages?  Redefaults, Self-Cures and Securitization
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15159
PY  - 2009
Y2  - July 2009
UR  - http://www.nber.org/papers/w15159
L1  - http://www.nber.org/papers/w15159.pdf
N1  - Author contact info:
Manuel Adelino
Tuck School of Business at Dartmouth
100 Tuck Hall
Hanover, NH 03755
Tel: 857-383-1027
E-Mail: manuel.adelino@tuck.dartmouth.edu

Kristopher Gerardi
Federal Reserve Bank of Atlanta
1000 Peachtree St. NE
Atlanta, GA 30309
E-Mail: kristopher.gerardi@atl.frb.org

Paul S. Willen
Federal Reserve Bank of Boston
600 Atlantic Avenue
Boston, MA  02210-2204
Tel: 617/973-3149
Fax: 617/973-2123
E-Mail: willen968@gmail.com
AB  - We document the fact that servicers have been reluctant to renegotiate mortgages since the foreclosure crisis started in 2007, having performed payment reducing modifications on only about 3 percent of seriously delinquent loans.  We show that this reluctance does not result from securization:  servicers renegotiate similarly small fractions of loans that they hold in their portfolios. Our results are robust to different definitions of renegotiation, including the one most likely to be affected by securitization, and to different definitions of delinquency.   Our results are strongest in subsamples in which unobserved heterogeneity between portfolio and securitized loans is likely to be small and for subprime loans.  We use a theoretical model to show that redefault risk, the possibility that a borrower will still default despite costly renegotiation, and self-cure risk, the possibility that a seriously delinquent borrower will become current without renegotiation, make renegotiation unattractive to investors.
ER  -