33 the day to day management of the mortgage is left

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33 The day-to-day management of the mortgage is left to a servicer, who typically is in closest contact with the borrower and who collects a fee that is based on the size of the loan. The servicer must decide whether to modify each mortgage. This arrangement has led some to worry that servicers either lack the authority or have insufficient incentives to undertake costly modifications. 34 Piskorski, Tomasz, Amit Seru, and Vikrant Vig (2009), "Securitization and Distressed Loan Renegotiation: Evidence from the Subprime Mortgage Crisis." Research Paper No. 09-02. Chicago Booth School of Business, August 2009. 35 “What Do Subprime Securitization Contracts Actually Say About Loan Modification?” John P. Hunt, March 2009, Berkeley Center for Law, Business, and the Economy Working Paper. 36 Haughwout, Andrew, Ebiere Okah, and Joseph S. Tracy (2009), “Second Chances: Subprime Mortgage Modification and Re-Default,” Federal Reserve Bank of New York Working Paper. 37 See Acharya, Viral V., Philipp Schnabl and Gustavo Suarez (2009) “Securitization without risk transfer”, Working paper, New York University Stern School of Business. 38 See Ashcraft, Adam, Morten Beck and W. Scott Frame (2009) “The Federal Home Loan Bank System: The Lender of Next-to-Last Resort?” Working Paper, Federal Reserve Bank of New York. 39 For a succinct history of central banking in the United States, see Thomas Cooley, Kermit Schoenholtz, George Smith, Richard Sylla and Paul Wachtel (2010) “The Power of Central Banks and the Future of the Federal Reserve System”, Chapter 2 in Regulating Wall Street: The Dodd-Frank Act and the New Architecture of Global Finance , edited by Acharya, Cooley, Richardson and Walter: John Wiley & Sons. 40 In his diary from days when the conservatorship plan was being hatched in July 2008, the then Treasury Secretary Henry Paulson recounts that the Federal Reserve Governor Ben Bernanke recognized that this was clearly a fiscal matter, but that the Board of Governors would consider it in the interest of financial stability if the Treasury were to be granted emergency authorities to take over the GSEs and avoid a disorderly liquidation by markets (Henry M. Paulson, Jr., 2010, On the Brink , Business Plus).
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147 41 The authors are grateful to Kim Schoenholtz for useful discussions regarding this point. See also David H. Small and James A. Clouse (2004) “The Scope of Monetary Policy Actions Authorized Under the Federal Reserve Act”, Working Paper, Board of Governors of the Federal Reserve, for understanding the ways and extent to which the Federal Reserve Act limits (and does not limit) the Fed from taking credit risk onto its balance sheet. 42 Chairman of the Board of Governors of the Federal Reserve, Ben Bernanke, called this the “portfolio balance channel” and attributed success to Fed’s quantitative easing program to altering the mix of investors’ portfolio mix (“The Economic Outlook and Monetary Policy”, Remarks at the Federal Reserve Bank of Kansas City Economic Symposium at Jackson Hole, Wyoming, August 27, 2010).
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