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Servicers and Mortgage‐Backed Securities Default: Theory and Evidence

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Real Estate Economics

Published online on

Abstract

We study conflicting incentives of the master and special servicers in handling troubled loans in a Commercial Mortgage‐Backed Securities deal and how the frictions between the interests of the two servicers might be diminished if the master and special servicing rights are held by the same firm. We show that concentrating both servicing rights in one firm reduces the likelihood that a defaulted loan terminates in foreclosure.