Coordinated strategic defaults and financial fragility in a costly state verification model

Carrasco, Vinícius; Salgado, Pablo

doi:10.1016/j.jfi.2013.06.001

Cited by 16 publications

(16 citation statements)

References 14 publications

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“…Following from the proof of Proposition , we do not consider mixed strategies. The existence of a default cut‐off value in our model is similar to the results of Proposition in Carrasco and Salgado ().…”

supporting

confidence: 88%

“…Wang et al . (), Brown, Ciochetti and Riddiough () and Carrasco and Salgado () develop models in which borrower default depends on the lender's foreclosure and renegotiation policy. Borrower default is endogenous and the models address the ex post efficiency of renegotiation and foreclosure decisions.…”

Section: Introductionmentioning

confidence: 99%

“…Results of prior empirical studies of mortgage defaults and foreclosure are consistent with our modeling and the models of Wang et al . (), Brown, Ciochetti and Riddiough (), Edmans () and Carrasco and Salgado (). For example, Cordell et al .…”

Section: Introductionmentioning

confidence: 99%

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Servicer Contracts and the Design of Mortgage‐Backed Security Pools

Mooradian

Pichler

2017

Real Estate Economics

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We develop a unified model of mortgage and servicer contracts. Renegotiating mortgage contracts following default is strictly Pareto improving, if the lender gathers updated information. An incentive compatible servicer contract requires the servicer to hold a risk position that has a value strictly greater than the cost of exerting effort. This risk position cannot in general be approximated with a horizontal “first‐loss” position. An alternative, forming a nondiversified pool, preserves pool‐wide information, avoids the cost of an incentive compatible servicer contract, and may increase MBS value.

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supporting

confidence: 88%

Section: Introductionmentioning

confidence: 99%

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Servicer Contracts and the Design of Mortgage‐Backed Security Pools

Mooradian

Pichler

2017

Real Estate Economics

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“…Following Carrasco and Salgado (2014), the level of liquidity determines the capacity to enforce loan repayment. However, I…”

Section: 2related Literaturementioning

confidence: 99%

“…Such claim would be a natural conjecture if, as in Carrasco and Salgado (2014), the level of liquidity determines the capacity to enforce loan repayment. If the originating bank can sell the loan to a bank with surplus liquidity, then a borrower run is an irrelevant possibility.…”

Section: 2related Literaturementioning

confidence: 99%