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Federal Reserve Bank of New York
Staff Reports
Securitization and the fixed-rate mortgage
Andreas Fuster
James Vickery
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.


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Andreas Fuster & James Vickery, Securitization and the fixed-rate mortgage, Federal Reserve Bank of New York, Staff Reports 594, 2013, revised 01 Jun 2014.
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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.
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Subject headings:
Keywords: mortgage finance; securitization; regression discontinuity design; difference-indifferences
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