Abstract
Tracking a sample of modified loans underlying private-label mortgage-backed securities, I compare the modification effectiveness of servicers who originated the loan versus those who simply service the loan. The probability of re-default among loans modified by the former is over 25% lower than the latter. Further tests show that the differences in modification success likely come from the soft information acquired during the origination process. These findings suggest that the loss of soft information in mortgage securitization can impose a substantial cost on mortgage servicing, which raises important policy implications for government regulations in this market.
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