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

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, <CitationRef CitationID="CR12">2010</CitationRef>). 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. (<CitationRef CitationID="CR1">2009</CitationRef>) that low modification rates are not the result of contract frictions inherent in the mortgage securitization process. Copyright Springer Science+Business Media New York (outside the USA) 2014