The capital structure and governance of a mortgage securitization utility
We explore the capital structure and governance of a mortgage-insuring securitization utility operating with government reinsurance for systemic or “tail” risk. The structure we propose for the replacement of the GSEs focuses on aligning incentives for appropriate pricing and transfer of mortgage risks across the private sector and between the private sector and the government. We present the justification and mechanics of a vintage-based capital structure, and assess the components of the mortgage guarantee fee, whose size we find is most sensitive to the required capital ratio and the expected return on that capital. We discuss the implications of selling off some of the utility’s mortgage credit risk to the capital markets and how the informational value of such transactions may vary with the level of risk transfer. Finally, we explore how mutualization could address incentive misalignments arising out of securitization and government insurance, as well as how the governance structure for such a financial market utility could be designed.
|Date of creation:||2013|
|Date of revision:|
|Contact details of provider:|| Postal: 33 Liberty Street, New York, NY 10045-0001|
Web page: http://www.newyorkfed.org/
More information through EDIRC
|Order Information:|| Web: http://www.ny.frb.org/rmaghome/staff_rp/ Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Damodaran, Aswath & John, Kose & Liu, Crocker H., 1997. "The determinants of organizational form changes: evidence and implications from real estate," Journal of Financial Economics, Elsevier, vol. 45(2), pages 169-192, August.
- A. Cole, Rebel & Mehran, Hamid, 1998.
"The effect of changes in ownership structure on performance: Evidence from the thrift industry,"
Journal of Financial Economics,
Elsevier, vol. 50(3), pages 291-317, December.
- Rebel A. Cole & Hamid Mehran, 1996. "The effect of changes in ownership structure on performance: evidence from the thrift industry," Finance and Economics Discussion Series 96-6, Board of Governors of the Federal Reserve System (U.S.).
- W. Scott Frame & Larry D. Wall & Lawrence J. White, 2012.
"The devil's in the tail: residential mortgage finance and the U.S. Treasury,"
FRB Atlanta Working Paper
2012-12, Federal Reserve Bank of Atlanta.
- W. Scott Frame & Larry D. Wall & Lawrence J. White, 2012. "The Devil's in the Tail: Residential Mortgage Finance and the U.S. Treasury," Working Papers 12-12, New York University, Leonard N. Stern School of Business, Department of Economics.
- 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.
- Adam B. Ashcraft & Til Schuermann, 2008. "Understanding the securitization of subprime mortgage credit," Staff Reports 318, Federal Reserve Bank of New York.
- Darrell Duffie & Ada Li & Theo Lubke, 2010.
"Policy Perspectives on OTC Derivatives Market Infrastructure,"
2010-002, Becker Friedman Institute for Research In Economics.
- Darrell Duffie & Ada Li & Theo Lubke, 2010. "Policy perspectives on OTC derivatives market infrastructure," Staff Reports 424, Federal Reserve Bank of New York.
- Duffie, Darrell & Li, Ada & Lubke, Theo, 2010. "Policy Perspectives on OTC Derivatives Market Infrastructure," Research Papers 2046, Stanford University, Graduate School of Business.
- Tobias Adrian & Adam B. Ashcraft, 2012.
"Shadow Banking Regulation,"
Annual Review of Financial Economics,
Annual Reviews, vol. 4(1), pages 99-140, October.
- Krupa S. Viswanathan & J. David Cummins, 2003. "Ownership Structure Changes in the Insurance Industry: An Analysis of Demutualization," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 70(3), pages 401-437.
- Jay F. Coughenour & Daniel N. Deli, 2002. "Liquidity Provision and the Organizational Form of NYSE Specialist Firms," Journal of Finance, American Finance Association, vol. 57(2), pages 841-869, 04.
- 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.
- James Vickery & Joshua Wright, 2010. "TBA trading and liquidity in the agency MBS market," Staff Reports 468, Federal Reserve Bank of New York.
- Piskorski, Tomasz & Seru, Amit & Vig, Vikrant, 2010.
"Securitization and distressed loan renegotiation: Evidence from the subprime mortgage crisis,"
Journal of Financial Economics,
Elsevier, vol. 97(3), pages 369-397, September.
- Vikrant Vig & Amit Seru & Tomasz Piskorski, 2009. "Securitization and Distressed Loan Renegotiation: Evidence from the Subprime Mortgage Crisis," 2009 Meeting Papers 1169, Society for Economic Dynamics.
- Qi, Min & Yang, Xiaolong, 2009. "Loss given default of high loan-to-value residential mortgages," Journal of Banking & Finance, Elsevier, vol. 33(5), pages 788-799, May.
- Andrew Caplin & Anna Cororaton & Joseph Tracy, 2012.
"Is the FHA Creating Sustainable Homeownership?,"
NBER Working Papers
18190, National Bureau of Economic Research, Inc.
- James G. Bohn & Brian Hall, 1999. "The Moral Hazard of Insuring the Insurers," NBER Chapters, in: The Financing of Catastrophe Risk, pages 363-390 National Bureau of Economic Research, Inc.
- Viral V. Acharya & Matthew Richardson & Stijn Van Nieuwerburgh & Lawrence J. White, 2011. "Guaranteed to Fail: Fannie Mae, Freddie Mac, and the Debacle of Mortgage Finance," Economics Books, Princeton University Press, edition 1, number 9400, 01-2013.
- Arrow, Kenneth J & Lind, Robert C, 1970. "Uncertainty and the Evaluation of Public Investment Decisions," American Economic Review, American Economic Association, vol. 60(3), pages 364-78, June.
- Lee, Soon-Jae & Mayers, David & Smith Jr., Clifford W., 1997. "Guaranty funds and risk-taking Evidence from the insurance industry," Journal of Financial Economics, Elsevier, vol. 44(1), pages 3-24, April.
When requesting a correction, please mention this item's handle: RePEc:fip:fednsr:644. 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: (Amy Farber)
If references are entirely missing, you can add them using this form.