Mortgage Servicing Fees and Servicer Incentives During Loss Mitigation

• 成果类型: Article
• 署名作者: Diop, Moussa; Zheng, Chen
• 署名单位: University of Southern California; The Brattle Group
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2022.4626
• 发表日期: 2023
• 页码: 7118-7150
• 关键词: Real estate; securitization; Mortgage servicing; servicer incentives; MORTGAGE MODIFICATION; foreclosure

摘要

We study incentive problems associated with the compensation of servicers during default remediation. First, we fill a gap in the literature by identifying stylized facts about servicing fees. Next, we present evidence showing that servicing fees drive mortgage modifications and foreclosures, likely to the detriment of investors. Servicers modify loans paying high servicing fees and delay their foreclosure to protect servicing cash flows. These effects are causal. Voluntary mortgage renegotiation by servicers is unlikely to reduce fore-closures. In addition to ex post government intervention, special servicing and innovative mortgage contracts allowing for affordable modifications that benefit investors may improve renegotiation outcomes.