IDEAS home Printed from https://ideas.repec.org/a/oup/rfinst/v28y2015i1p176-211..html
   My bibliography  Save this article

Securitization and the Fixed-Rate Mortgage

Author

Listed:
  • Andreas Fuster
  • James Vickery

Abstract

Fixed-rate mortgages (FRMs) dominate the U.S. mortgage market, with important consequences for monetary policy, household risk management, and financial stability. We show that the FRM market share is sharply lower when mortgages are difficult to securitize, exploiting plausibly exogenous variation in access to liquid securitization markets generated by a regulatory cutoff and time variation in private securitization activity. We interpret our findings as evidence that lenders are reluctant to retain the prepayment and interest rate risk embedded in FRMs. The form of securitization (private versus government backed) has little effect on FRM supply during periods in which private securitization markets are well functioning.

Suggested Citation

  • Andreas Fuster & James Vickery, 2015. "Securitization and the Fixed-Rate Mortgage," Review of Financial Studies, Society for Financial Studies, vol. 28(1), pages 176-211.
  • Handle: RePEc:oup:rfinst:v:28:y:2015:i:1:p:176-211.
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1093/rfs/hhu060
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Christopher Foote & Kristopher Gerardi & Lorenz Goette & Paul Willen, 2010. "Reducing Foreclosures: No Easy Answers," NBER Chapters,in: NBER Macroeconomics Annual 2009, Volume 24, pages 89-138 National Bureau of Economic Research, Inc.
    2. Douglas Almond & Joseph J. Doyle & Amanda E. Kowalski & Heidi Williams, 2010. "Estimating Marginal Returns to Medical Care: Evidence from At-risk Newborns," The Quarterly Journal of Economics, Oxford University Press, vol. 125(2), pages 591-634.
    3. James Vickery & Joshua Wright, 2013. "TBA trading and liquidity in the agency MBS market," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 1-18.
    4. Dechario, Toni & Mosser, Patricia C. & Tracy, Joseph & Vickery, James & Wright, Joshua, 2010. "A private lender cooperative model for residential mortgage finance," Staff Reports 466, Federal Reserve Bank of New York.
    5. Paul Calem & Francisco Covas & Jason Wu, 2013. "The Impact of the 2007 Liquidity Shock on Bank Jumbo Mortgage Lending," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45, pages 59-91, August.
    6. Koijen, Ralph S.J. & Hemert, Otto Van & Nieuwerburgh, Stijn Van, 2009. "Mortgage timing," Journal of Financial Economics, Elsevier, vol. 93(2), pages 292-324, August.
    7. Xavier Gabaix & Arvind Krishnamurthy & Olivier Vigneron, 2007. "Limits of Arbitrage: Theory and Evidence from the Mortgageā€Backed Securities Market," Journal of Finance, American Finance Association, vol. 62(2), pages 557-595, April.
    8. Jean Tirole, 2011. "Illiquidity and All Its Friends," Journal of Economic Literature, American Economic Association, vol. 49(2), pages 287-325, June.
    9. Imbens, Guido W. & Lemieux, Thomas, 2008. "Regression discontinuity designs: A guide to practice," Journal of Econometrics, Elsevier, vol. 142(2), pages 615-635, February.
    10. Elul, Ronel, 2011. "Securitization and mortgage default," Working Papers 09-21, Federal Reserve Bank of Philadelphia.
    11. Froot, Kenneth A. & Stein, Jeremy C., 1998. "Risk management, capital budgeting, and capital structure policy for financial institutions: an integrated approach," Journal of Financial Economics, Elsevier, vol. 47(1), pages 55-82, January.
    12. repec:bla:jorssc:v:43:y:1994:i:3:p:429-453 is not listed on IDEAS
    13. Froot, Kenneth A & Scharfstein, David S & Stein, Jeremy C, 1993. " Risk Management: Coordinating Corporate Investment and Financing Policies," Journal of Finance, American Finance Association, vol. 48(5), pages 1629-1658, December.
    14. Manuel Adelino & Antoinette Schoar & Felipe Severino, 2012. "Credit Supply and House Prices: Evidence from Mortgage Market Segmentation," NBER Working Papers 17832, National Bureau of Economic Research, Inc.
    15. Jun Liu & Francis A. Longstaff & Ravit E. Mandell, 2006. "The Market Price of Risk in Interest Rate Swaps: The Roles of Default and Liquidity Risks," The Journal of Business, University of Chicago Press, vol. 79(5), pages 2337-2360, September.
    16. Emanuel Moench & James Vickery & Diego Aragon, 2010. "Why is the market share of adjustable-rate mortgages so low?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 16(Dec).
    17. Schwartz, Eduardo S & Torous, Walter N, 1989. " Prepayment and the Valuation of Mortgage-Backed Securities," Journal of Finance, American Finance Association, vol. 44(2), pages 375-392, June.
    18. Elena Loutskina & Philip E. Strahan, 2009. "Securitization and the Declining Impact of Bank Finance on Loan Supply: Evidence from Mortgage Originations," Journal of Finance, American Finance Association, vol. 64(2), pages 861-889, April.
    19. Benjamin J. Keys & Tanmoy Mukherjee & Amit Seru & Vikrant Vig, 2010. "Did Securitization Lead to Lax Screening? Evidence from Subprime Loans," The Quarterly Journal of Economics, Oxford University Press, vol. 125(1), pages 307-362.
    20. Stanton, Richard, 1995. "Rational Prepayment and the Valuation Mortgage-Backed Securities," Review of Financial Studies, Society for Financial Studies, vol. 8(3), pages 677-708.
    Full references (including those not matched with items on IDEAS)

    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:rfinst:v:28:y:2015:i:1:p:176-211.. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press) or (Christopher F. Baum). General contact details of provider: http://edirc.repec.org/data/sfsssea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.