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Federal Reserve Bank of San Francisco
Working Paper Series
Mortgage loan securitization and relative loan performance
John Krainer
Elizabeth Laderman
Abstract

We compare the ex ante observable risk characteristics and the default rates of securitized mortgage loans and mortgage loans retained by the original lender. We find that privately securitized loans tend to be riskier and to default at a faster rate than loans securitized with the GSEs and lender-retained loans. However, the differences in default rates across investor types are of secondary importance for explaining mortgage defaults compared to more conventional predictors, such as original loan-to-value ratios and the path for house prices. Privately securitized home mortgages have conditionally higher expected returns than retained loans, suggesting the presence of risk factors that are unobservable but nonetheless at least partially acknowledged by the market.


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John Krainer & Elizabeth Laderman, Mortgage loan securitization and relative loan performance, Federal Reserve Bank of San Francisco, Working Paper Series 2009-22, 2009.
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Keywords: Mortgage loans
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