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Mortgage Loan Securitization and Relative Loan Performance
John Krainer - Elizabeth Laderman
Published: 2011

We compare the ex ante observable risk characteristics, the default performance, and the pricing of securitized mortgage loans and mortgage loans retained by the original lender. We find that privately securitized fixed and adjustable-rate mortgages are 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.
However, we do find evidence that privately securitized adjustable-rate mortgages performed worse than retained mortgages, even after controlling for a large number of risk factors. Despite the higher measures of ex ante risk, the loan rates on privately securitized adjustable-rate mortgages were lower than for retained mortgages.
(From authors)

Main topics: Mortgage Lending, Securitization, Loan Quality, Asymmetric Information

eBook License: Copyrighted (Personal Use only after downloading from Federal Bank Reserve of San Francisco Website)

eBook in PDF format - 865 Kb - 38 pages