Aug 12, 2015 - Freddie Mac did not allow integrated auctioneers in foreclosure ... backed by Freddie Mac as well as the
Agency and Incentives: Vertical Integration in the Mortgage Foreclosure Industry∗ Lauren Lambie-Hanson† FRB Philadelphia
Timothy Lambie-Hanson‡ Haverford College
August 12, 2015
Abstract In most US 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 to 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.
Keywords: Vertical Integration; Mortgage Foreclosure JEL Codes: D23, G21, G28, L22, L85
∗
The views expressed in this paper are those of the authors and do not necessarily reflect those of the Federal Reserve Bank of Philadelphia or the Federal Reserve System. We also thank Darlene Chisholm for helpful suggestions and guidance throughout the completion of this project. Our work also greatly benefited from conversations with Haldun Evrenk and Paul Willen. The views expressed in this paper are those of the authors and do not necessarily reflect those of the Federal Reserve Bank of Philadelphia or the Federal Reserve System. † Risk Assessment, ##
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