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The effect of automated underwriting on the profitability of mortgage securitization

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Author Info
Wayne Passmore
Roger Sparks
Abstract

Over the past two years, many mortgage market analysts have praised automated underwriting as a technological innovation that will lower the costs of processing mortgage applications. However, automated underwriting is unlikely to decrease processing costs uniformly for all mortgage applications. Instead, it makes identifying and processing low-risk mortgage borrowers less costly, but may not significantly lower the costs of identifying and processing relatively high-risk applicants. Our results suggest that after the one-time cost reduction produced by automated underwriting, the resulting mortgage market equilibrium is characterized by lower mortgage rates and lower profits for the mortgage securitizer.

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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 1997-19.

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Date of creation: 1997
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Handle: RePEc:fip:fedgfe:1997-19

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Related research
Keywords: Mortgages ; Asset-backed financing;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. John L. Goodman, Jr. & S. Wayne Passmore, 1992. "Market power and the pricing of mortgage securitization," Finance and Economics Discussion Series 187, Board of Governors of the Federal Reserve System (U.S.).
  2. Patric H. Hendershott & James D. Shilling, 1989. "The Impact of the Agencies on Conventional Fixed-Rate Mortgage Yields," NBER Working Papers 2646, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Passmore, Wayne & Sparks, Roger, 1996. "Putting the Squeeze on a Market for Lemons: Government-Sponsored Mortgage Securitization," The Journal of Real Estate Finance and Economics, Springer, vol. 13(1), pages 27-43, July.
  4. Quigley, John M & Van Order, Robert, 1995. "Explicit Tests of Contingent Claims Models of Mortgage Default," The Journal of Real Estate Finance and Economics, Springer, vol. 11(2), pages 99-117, September.
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  5. Hendershott, Patric H & Shilling, James D, 1989. "The Impact of the Agencies on Conventional Fixed-Rate Mortgage Yields," The Journal of Real Estate Finance and Economics, Springer, vol. 2(2), pages 101-15, June.
  6. William H. Greene, 1992. "A Statistical Model for Credit Scoring," Working Papers 92-29, New York University, Leonard N. Stern School of Business, Department of Economics. [Downloadable!]
  7. Deng, Yongheng & Quigley, John M. & Van Order, Robert & Mac, Freddie, 1996. "Mortgage default and low downpayment loans: The costs of public subsidy," Regional Science and Urban Economics, Elsevier, vol. 26(3-4), pages 263-285, June. [Downloadable!] (restricted)
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