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Mortgage loan securitization and relative loan performance

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Listed author(s):
  • John Krainer
  • Elizabeth Laderman

Abstract

We compare the ex ante observable risk characteristics and the default rates of securitized mortgage loans and mortgage loans retained by the original lender. We find that privately securitized loans tend to be riskier and to default at a faster rate than loans securitized with the GSEs and lender-retained loans. However, the differences in default rates across investor types are of secondary importance for explaining mortgage defaults compared to more conventional predictors, such as original loan-to-value ratios and the path for house prices. Privately securitized home mortgages have conditionally higher expected returns than retained loans, suggesting the presence of risk factors that are unobservable but nonetheless at least partially acknowledged by the market.

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File URL: http://www.frbsf.org/publications/economics/papers/2009/wp09-22bk.pdf
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Paper provided by Federal Reserve Bank of San Francisco in its series Working Paper Series with number 2009-22.

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Date of creation: 2009
Handle: RePEc:fip:fedfwp:2009-22
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Keywords: Mortgage loans;

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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.
  2. Mark Carey, 1998. "Credit Risk in Private Debt Portfolios," Journal of Finance, American Finance Association, vol. 53(4), pages 1363-1387, 08.
  3. 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.
  4. Brent Ambrose & Michael LaCour-Little & Anthony Sanders, 2005. "Does Regulatory Capital Arbitrage, Reputation, or Asymmetric Information Drive Securitization?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 28(1), pages 113-133, October.
  5. Ashcraft, Adam B. & Schuermann, Til, 2008. "Understanding the Securitization of Subprime Mortgage Credit," Foundations and Trends(R) in Finance, now publishers, vol. 2(3), pages 191-309, June.
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Cited by:

  1. Blackburn, McKinley L. & Vermilyea, Todd, 2012. "The prevalence and impact of misstated incomes on mortgage loan applications," Journal of Housing Economics, Elsevier, vol. 21(2), pages 151-168.
  2. Kiff, John & Kisser, Michael, 2014. "A shot at regulating securitization," Journal of Financial Stability, Elsevier, vol. 10(C), pages 32-49.
  3. Bubb, Ryan & Kaufman, Alex, 2014. "Securitization and moral hazard: Evidence from credit score cutoff rules," Journal of Monetary Economics, Elsevier, vol. 63(C), pages 1-18.
  4. Ryan Bubb & Alex Kaufman, 2011. "Securitization and moral hazard: evidence from credit score cutoff rules," Public Policy Discussion Paper 11-6, Federal Reserve Bank of Boston.
  5. Ugo Albertazzi & Ginette Eramo & Leonardo Gambacorta & Carmelo Salleo, 2011. "Securitization is not that evil after all," Temi di discussione (Economic working papers) 796, Bank of Italy, Economic Research and International Relations Area.
  6. Adelino, Manuel & Frame, W. Scott & Gerardi, Kristopher S., 2014. "The Effect of Large Investors on Asset Quality: Evidence from Subprime Mortgage Securities," FRB Atlanta Working Paper 2014-4, Federal Reserve Bank of Atlanta, revised 01 Mar 2017.
  7. John Krainer & Elizabeth Laderman, 2011. "Prepayment and delinquency in the mortgage crisis period," Working Paper Series 2011-25, Federal Reserve Bank of San Francisco.
  8. Frankel, David M. & Jin, Yu, 2011. "Securitization and Lending Competition," Staff General Research Papers Archive 34868, Iowa State University, Department of Economics.

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