Report

Securitization and the fixed-rate mortgage

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.

Keywords: difference-in-differences; securitization; regression discontinuity design; mortgage finance;

JEL Classification: G21; G18; E44;

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Staff Reports

Publication Date: 2014-06-01

Number: 594

Pages: 77 pages

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.