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Federal Reserve Bank of Atlanta
FRB Atlanta Working Paper
The Effect of Large Investors on Asset Quality: Evidence from Subprime Mortgage Securities
Manuel Adelino
W. Scott Frame
Kristopher S. Gerardi
Abstract

The government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac—the dominant investors in subprime mortgage-backed securities before the 2008 crisis—substantively affected collateral composition in this market. Mortgages included in securities designed for the GSEs performed better than those backing other securities in the same deals, holding observable risk constant. Consistent with the transmission of private information, these effects are concentrated in low-documentation loans and for issuers that were highly dependent on the GSEs and were corporate affiliates of the mortgage originators. Additional analysis of yield spreads shows that these performance differences were not reflected in prices.


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Manuel Adelino & W. Scott Frame & Kristopher S. Gerardi, The Effect of Large Investors on Asset Quality: Evidence from Subprime Mortgage Securities, Federal Reserve Bank of Atlanta, FRB Atlanta Working Paper 2014-4, 01 Apr 2014, revised 01 Mar 2017.
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Keywords: mortgage default; GSEs; securitization; private information
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