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Assessing the effectiveness of the Paulson "teaser freezer" plan: evidence from the ABX index

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  • Eliana Balla
  • Robert E. Carpenter
  • Breck Robinson
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    Abstract

    How did investors holding assets backed by subprime residential mortgages react when Treasury Secretary Paulson announced the so-called "teaser freezer" plan to modify mortgages in December 2007? We apply event-study methodology to the ABX index, the only source of daily securities prices in subprime mortgage markets. Our results show that investors initially perceived that the Paulson Plan would improve conditions in subprime housing markets. Specifically, those investors who held the riskiest securities backed by subprime residential housing benefited the most from the Paulson Plan. These findings do not extend to the longer term, suggesting that any positive effects from Paulson Plan loan modifications were overwhelmed by the continued deterioration in housing markets. ; WP 10-06 replaces an earlier version listed as WP 09-7

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    Bibliographic Info

    Paper provided by Federal Reserve Bank of Richmond in its series Working Paper with number 10-06.

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    Date of creation: 2010
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    Handle: RePEc:fip:fedrwp:10-06

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    Keywords: Mortgages ; Housing;

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