Review of Finance Vol. 29 No. 5 2025

The effect of mortgage securitization on asset liquidation decisions

Anurag A Mehrotra¹; Adam Nowak²; Patrick S. Smith³

¹ Fowler College of Business, San Diego State University , San Diego, CA, · ² John Chambers College of Business, West Virginia University , Morgantown, WV, · ³ Belk College of Business, University of North Carolina at Charlotte, Charlotte, NC ,

Abstract

This article examines whether agency conflicts introduced by securitization affect servicers’ asset liquidation decisions. We find securitized loans are 25.4–28.5 percent less likely to be liquidated via short sales than portfolio loans. Securitized loan servicers’ bias against short sales does not represent an agency conflict if short sale and real estate owned (REO) liquidations are equally efficient. However, we find REOs have significantly lower average liquidation prices, higher average liquidation expenses, and longer average liquidation times than short sales. Although short sales benefit investors, securitized loan servicers have a financial incentive to pursue REOs.

DOI

10.1093/rof/rfaf038

Volume

29

Issue

5

Pages

1369-1395

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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