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Securitization and the fixed-rate mortgage

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Abstract

Fixed-rate mortgages (FRMs) dominate the U.S. mortgage market, with important consequences for monetary policy, household risk management, and financial stability. In this paper, we show that the share of FRMs is sharply lower when mortgages are difficult to securitize. Our analysis exploits 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 when private securitization markets are well-functioning.

Suggested Citation

  • Fuster, Andreas & Vickery, James, 2013. "Securitization and the fixed-rate mortgage," Staff Reports 594, Federal Reserve Bank of New York, revised 01 Jun 2014.
  • Handle: RePEc:fip:fednsr:594
    Note: For a published version of this report, see Andreas Fuster and James Vickery, "Securitization and the Fixed-Rate Mortgage," Review of Financial Studies 28, no. 1 (January 2015): 176-211.
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    Keywords

    mortgage finance; securitization; regression discontinuity design; difference-indifferences;

    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

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