Identifying the Effect of Securitization on Foreclosure and Modification Rates Using Early-payment Defaults ∗

This paper develops and estimates an instrumental variables strategy for identify-ing the causal effect of securitization on the incidence of mortgage modification and foreclosure based on the early-payment default analysis performed by Piskorsi, Seru, and Vig (2010). Estimation results show that securitized mortgages are more likely to be modified and less likely to be foreclosed on by servicers. These results are consis-tent with the interpretation in Adelino et al. (2013) that low modification rates are not the result of contract frictions inherent in the mortgage securitization process