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Mortgage Loan Securitization and Relative Loan Performance

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  • John Krainer
  • Elizabeth Laderman

Abstract

We compare the ex ante observable risk characteristics, the default performance, and the pricing of securitized mortgage loans to mortgage loans retained by the original lender. In our sample of loans originated between 2000 and 2007, we find that privately securitized fixed and adjustable-rate mortgages were riskier ex ante than lender-retained loans or loans securitized through the government sponsored agencies. We do not find any evidence of differential loan performance for privately securitized fixed-rate mortgages. We find evidence that privately securitized adjustable-rate mortgages performed worse than retained mortgages, although other observable factors appear to be more economically important determinants of mortgage default. We do not find any evidence of a compensating premium in the loan rates for privately securitized adjustable-rate mortgages. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • John Krainer & Elizabeth Laderman, 2014. "Mortgage Loan Securitization and Relative Loan Performance," Journal of Financial Services Research, Springer;Western Finance Association, vol. 45(1), pages 39-66, February.
    • Handle: RePEc:kap:jfsres:v:45:y:2014:i:1:p:39-66
    DOI: 10.1007/s10693-013-0161-7
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    1. G. Dionne & T. M. Harchaoui, 2002. "Banks’ Capital, Securitization and Credit Risk : An Empirical Evidence for Canada," THEMA Working Papers 2002-33, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
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    More about this item

    Keywords

    Mortgage lending; Securitization; Loan quality; Asymmetric information; G21; L11; D82;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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