The academic literature, the popular press, and policymakers have all debated the securitization's contribution to the poor performance of mortgages originated in the run-up to the current crisis. Theoretical arguments have been advanced on both sides, but the lack of suitable data has made it difficult to assess them empirically. The author examines this issue by using a loan-level data set from LPS Analytics, covering approximately three-quarters of the mortgage market from 2003-2007 and including both securitized and non-securitized loans. He finds evidence that privately securitized loans do indeed perform worse than similar, non-securitized loans. Moreover, this effect is concentrated in prime mortgage markets; for example, a typical prime ARM loan originated in 2006 becomes delinquent at a 20 percent higher rate if it is privately securitized, ceteris paribus. By contrast, subprime loan performance does not seem to be worse for most classes of securitized loans.
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Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number
09-21.