Why Don T Lenders Renegotiate More Home Mortgages

This is a print on demand edition of a hard to find publication. Servicers have been reluctant to renegotiate mortgages since the foreclosure crisis started in 2007, having performed payment-reducing modifications on only 3% of seriously delinquent loans. This reluctance does not result from securitization: Servicers renegotiate similarly small fractions of loans that they hold in their portfolios. The paper¿s results are robust to different definitions of renegotiation, including the one most likely to be affected by securitization, and to different definitions of delinquency. 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. Illus.

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.

The Oxford Handbook of Banking provides an overview and analysis of state-of-the-art research in banking written by leading researchers in the field. This Handbook will appeal to graduate students of economics, banking and finance, academics, practitioners and policy makers. Consequently, the book strikes a balance between abstract theory, empirical analysis, and practitioner and policy-related material. The handbook is split into five parts. Part I, The Theory of Banking, examines the role of banks in the wider financial system, why banks exist, how they function, and their legal and governance structures. Part II entitled Regulatory and Policy Perspectives discusses monetary policy, prudential regulation and supervision, and antitrust policy. Part III of the book deals with bank performance. A number of issues are assessed including efficiency, financial innovation and technological change, globalization and ability to deliver small business, consumer, and mortgage lending services. Part IV of the book provides an overview of macroeconomic perspectives in banking. This part of the book includes a discussion of the determinants of bank failures and crises, and the impact on financial stability, institutional development, and economic growth. Part V examines International Differences In Banking Structures And Environments. This part of the handbook examines banking systems in the United States, Western Europe, Transition countries, Latin America, Japan and the Developing nations of Asia.

The Oxford Handbook of Banking, Second Edition provides an overview and analysis of developments and research in banking written by leading researchers in the field. This handbook will appeal to graduate students of economics, banking and finance, academics, practitioners, regulators, and policy makers. Consequently, the book strikes a balance between abstract theory, empirical analysis, and practitioner, and policy-related material. The Handbook is split into five parts. Part I, The Theory of Banking, examines the role of banks in the wider financial system, why banks exist, how they function, and their corporate governance and risk management practices. Part II deals with Bank Operations and Performance. A range of issues are covered including bank performance, financial innovation, and technological change. Aspects relating to small business, consumer, and mortgage lending are analysed together with securitization, shadow banking, and payment systems. Part III entitled Regulatory and Policy Perspectives discusses central banking, monetary policy transmission, market discipline, and prudential regulation and supervision. Part IV of the book covers various Macroeconomic Perspectives in Banking. This part includes a discussion of systemic risk and banking and sovereign crises, the role of the state in finance and development as well as how banks influence real economic activity. The final Part V examines International Differences in Banking Structures and Environments. This part of the Handbook examines banking systems in the United States, European Union, Japan, Africa, Transition countries, and the developing nations of Asia and Latin America.