The Failure of Models that Predict Failure: Distance, Incentives and Defaults

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Securitization and Distressed Loan Renegotiation: Evidence from the Subprime Mortgage Crisis (2010, unknown): “The reason to focus on these loans is that several studies provide evidence that potential screening on unobservables is less important for these types of loans (Keys et al., 2009; Keys et al., 2010; Rajan et al., 2008).”
Policy Intervention in Debt Renegotiation: Evidence from the Home Affordable Modification Program (2016, result): “Our work also relates to the literature on the housing crisis (e.g., Mian and Sufi 2009; Mayer et al. 2009; Gyourko et al., 2009, Keys et al. 2010, 2011; Rajan et al. 2010; and Demyanyk and Van Hemert 2011, Gyourko and Fernando 2011).”
Shadow Banking in a Crisis: Evidence from Fintech During COVID-19 (2021, unknown): “Following Rajan, Seru, and Vig (2015), we study the correlation between interest rates and loan performance and test whether the fintech companies have better algorithms for the pricing of loans.”
The Subprime Crisis and House Price Appreciation (2011, unknown): “Rajan et al. (2008) show that from 1997–2006, lending rates increasingly relied on hard information and propose that future default rates were underestimated because of the lack of soft information.”
THE FINANCIAL CRISIS AND THE SYSTEMIC FAILURE OF THE ECONOMICS PROFESSION (2009, unknown): “Standard loan-default models of the sort on which rating agencies relied failed dramatically in recent years (Rajan et al. 2008).”