The Journal of Real Estate Finance and Economics

, Volume 49, Issue 3, pp 352–378 | Cite as

Identifying the Effect of Securitization on Foreclosure and Modification Rates Using Early Payment Defaults

  • Manuel Adelino
  • Kristopher Gerardi
  • Paul Willen


This paper develops and estimates an instrumental variables strategy for identifying the causal effect of securitization on the incidence of mortgage modification and foreclosure based on the early payment default analysis performed by Piskorsi et al. (J Financ Econ 97:360–397, 2010). Estimation results show that securitized mortgages are more likely to be modified and less likely to be foreclosed on by servicers. These results are consistent with the interpretation in Adelino et al. (2009) that low modification rates are not the result of contract frictions inherent in the mortgage securitization process.


Early payment default Foreclosure Mortgage Securitization 

JEL Classification

D11 D12 G21 



We thank Chris Cunningham, Chris Foote, Sam Kruger, and an anonymous referee for thoughtful comments.


  1. Adelino, M., Gerardi, K., Willen, P. (2009). Why don’t lenders renegotiate more home mortgages? redefaults, self-cures and securitization. Technical report, FRB Atlanta working paper 2009–17.Google Scholar
  2. Agarwal, S., Amrominm, G., Ben-David, I., Chomsisengphet, S., Evanoff, D. (2011). The role of securitization in mortgage renegotiation. Journal of Financial Economics, 80, 559–578.CrossRefGoogle Scholar
  3. Angrist, J.D. (1990). Lifetime earnings and the vietnam era draft lottery: evidence from social security administrative records. American Economic Review, 80, 313–336.Google Scholar
  4. Chiburis, R., Das, J., Lokshin, M. (2011). A practical compariso of the bivariate probit and linear iv estimators. Technical report, World bank policy research working paper 5601.Google Scholar
  5. Dowell, J. (2007). Servicing scratch-and-dent loans presents special challenges. Mortgage Banking.Google Scholar
  6. Elul, R. (2009). Securitization and mortgage default. Technical report, Federal reserve bank of philadelphia working paper 09-21.Google Scholar
  7. Gerardi, K., Lambie-Hansen, L., Willen, P. (2013). Do borrower rights improve borrower outcomes? Evidence from the foreclosure process. Journal of Urban Economics, 73, 1–17.CrossRefGoogle Scholar
  8. Gorton, G., & Souleles, N. (2005). Special purpose vehicles and securitization. Technical report, NBER working paper 11190.Google Scholar
  9. Keys, B.J., Mukherjee, T., Seru, A., Vig, V. (2010). Did securitization lead to lax screening? evidence from subprime loans. Quarterly Journal of Economics, 125, 307–362.CrossRefGoogle Scholar
  10. Krainer, J., & Laderman, E. (2009). Mortgage loan securitization and relative loan performance. Technical report, Federal reserve bank of san Francisco working paper 2009-22.Google Scholar
  11. Mian, A., & Sufi, A. (2009). The consequences of mortgage credit expansion: evidence from the us mortgage default crisis. Quarterly Journal of Economics, 124, 1449–1496.CrossRefGoogle Scholar
  12. Piskorski, T., Seru, A., Vig, V. (2010). Securitization and distressed loan renegotiation: evidence from the subprime mortgage crisis. Journal of Financial Economics, 97, 360–397.CrossRefGoogle Scholar
  13. Stock, J.H., Yogo, M. (2002). Testing for weak instruments in linear iv regression. Technical report, NBER working paper 284.Google Scholar

Copyright information

© Springer Science+Business Media New York (outside the USA) 2013

Authors and Affiliations

  • Manuel Adelino
    • 1
  • Kristopher Gerardi
    • 2
  • Paul Willen
    • 3
  1. 1.Duke University’s Fuqua School of BusinessDuke UniversityDurhamUSA
  2. 2.Federal Reserve Bank of Atlanta Department of ResearchFederal Reserve Bank of AtlantaAtlantaUSA
  3. 3.Federal Reserve Bank of Boston Research Department and NBERFederal Reserve Bank of BostonBostonUSA

Personalised recommendations