Evaluating Mortgage Renegotiation Strategies: A Data-Driven Framework for Investors

• 成果类型: Article; Early Access
• 署名作者: Korgaonkar, Sanket
• 署名单位: University of Virginia
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2022.02672
• 发表日期: 2025
• 关键词: Mortgages; RENEGOTIATION; loan modifications; foreclosure; financial crises

摘要

This paper offers a novel framework to quantify the expected gains from renegotiating delinquent loans. The framework accounts for important trade-offs between concessions to borrowers, postdelinquency loan performance, and expected collateral values. The framework's parameters are calibrated using data on renegotiated 30-year residential fixed-rate mortgages that went delinquent during the Great Recession. Our model-implied expected gains increase during the 2007-2009 period coinciding with an increase in the rate of loan renegotiation. Counterfactual analyses show that larger expected gains can be generated from employing principal forbearance and extensions of the term to maturity compared with principal write-downs and interest-rate reductions. On the other hand, principal write-downs can be a powerful tool when borrowers are deeply underwater. Our analyses illustrate how lenders or policymakers might deploy this framework when faced with another delinquency crisis.