Search Results
Showing results 1 to 10 of approximately 18.
(refine search)
Working Paper
Designing loan modifications to address the mortgage crisis and the making home affordable program
Delinquencies on residential mortgages and home foreclosures have risen dramatically in the past couple of years. The mortgage losses triggered a broad-based financial crisis and severe recession, which, in turn, exacerbated the initial financial distress faced by homeowners. Although servicers increased their loss mitigation efforts as defaults began to mount, foreclosures continued to occur in cases where both the borrower and investor would be better off if such an outcome were avoided. The U.S. government has engaged in a number of initiatives to reduce such foreclosures. This paper ...
Working Paper
The incentives of mortgage servicers: myths and realities
As foreclosure initiations have soared over the past couple of years, many have questioned whether mortgage servicers have the right incentives to work out troubled subprime mortgages so that borrowers can avoid foreclosure and remain in their homes. Some critics claim that because servicers, unlike investors, do not bear the losses associated with foreclosure, they have little incentive to modify troubled loans by reducing interest rates or principal, or by extending the term. Our analysis suggests that while servicers have substantially improved borrower outreach and increased loss ...
Working Paper
The cost of delay
In this study, we make use of a massive database of mortgage defaults to estimate REO liquidation timelines and time-related costs resulting from the recent post-crisis interventions in the mortgage market and the freezing of foreclosures due to ?robo-signing? revelations. The cost of delay, estimated by comparing today?s time-related costs to those before the start of the financial crisis, is eight percentage points, with enormous variation among states. While costs are estimated to be four percentage points higher in statutory foreclosure states, they are estimated to be 13 percentage ...
Working Paper
Understanding and measuring risks in Agency CMOs
The Agency CMO market, an often overlooked corner of mortgage finance, has experienced tremendous growth over the past decade. This paper explains the rationale behind the construction of Agency CMOs, quantifies risks embedded in Agency CMOs using a traditional and a novel approach, and offers valuable lessons learned when interpreting these risk measures. Among these lessons is that to fully understand the risks in Agency CMOs a full bond-by-bond analysis is necessary and that interest rate risk is not the only risk that needs to be considered when conducting risk management with CMOs.
Working Paper
Mortgage Loss Severities: What Keeps Them So High?
Mortgage loss-given-default (LGD) increased significantly when house prices plummeted during the financial crisis, but it has remained over 40 percent in recent years, despite a strong housing recovery. Our results indicate that the sustained high LGDs post-crisis is due to a combination of an overhang of crisis-era foreclosures and prolonged liquidation timelines, which have offset higher sales recoveries. Simulations show that cutting foreclosure timelines by one year would cause LGD to decrease by 5 to 8 percentage points, depending on the tradeoff between lower liquidation expenses and ...
Working Paper
Mortgage Loss Severities: What Keeps Them So High?
Mortgage loss-given-default (LGD) increased significantly when house prices plummeted and delinquencies rose during the financial crisis, but it has remained over 40 percent in recent years despite a strong housing recovery. Our results indicate that the sustained high LGDs post-crisis are due to a combination of an overhang of crisis-era foreclosures and prolonged foreclosure timelines, which have offset higher sales recoveries. Simulations show that cutting foreclosure timelines by one year would cause LGD to decrease by 5?8 percentage points, depending on the trade-off between lower ...
Working Paper
The trust preferred CDO market: from start to (expected) finish
This paper investigates the development, issuance, structuring, and expected performance of the trust preferred securities collateralized debt obligation (TruPS CDO) market. Developed as a way to provide capital markets access to smaller banks, thrifts, insurance companies, and real estate investment trusts (REITs) by pooling the issuance of TruPS into marketable CDOs, the market grew to $60 billion of issuance from its inception in 2000 through its abrupt halt in 2007. As evidenced by rating agency downgrades, current performance, and estimates from the authors' own model, TruPS CDOs are ...
Working Paper
A cost-benefit analysis of judicial foreclosure delay and a preliminary look at new mortgage servicing rules
Since the start of the financial crisis, we have seen an extraordinary lengthening of foreclosure timelines, particularly in states that require judicial review to complete a foreclosure but also recently in nonjudicial states. Our analysis synthesizes findings from several lines of research, updates results, and presents new analysis to examine the costs and benefits of judicial foreclosure review. Consistent with previous studies, we find that judicial review imposes large costs with few, if any, offsetting benefits. We also provide early analysis of the new mortgage servicing rules enacted ...