Agency and Incentives: Vertical Integration in the Mortgage Foreclosure Industry

Abstract

In many U.S. states, the law firms that represent lenders in foreclosure proceedings must hire auctioneers to carry out the foreclosure auctions. We empirically test whether processing times differ for law firms that integrate the mortgage foreclosure auction process compared with law firms that contract with independent auction companies. We find that independent firms are able to initially schedule auctions more quickly, but when postponements occur, they are no faster to adapt. Since firms schedule the initial auction before contracting, independent auction companies have an incentive to conform to the law firms' schedules in order to secure the contracts. We argue that this is evidence of a cost of integration stemming from poorly aligned incentives within the firm.

When does delinquency result in neglect? Mortgage distress and property maintenance

“…12 As discussed in Section A6 of the appendix, I distinguish between REO and non-REO buyers using a carefully constructed dataset of all foreclosures in Boston, created for an earlier study, Lambie-Hanson and Lambie-Hanson (2012). This is necessary because the CoreLogic data can be ambiguous about precisely when the auction occurs and whether it results in a bank buyback or third-party sale.…”