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Working Paper
Liquidity in the Mortgage Market: How does the COVID-19 Crisis Compare with the Global Financial Crisis?
The liquidity strains that contributed to the meltdown of the mortgage market in the Global Financial Crisis (GFC) re-emerged in the Coronavirus 2019 (COVID-19) Crisis. Some of these strains were acute. For example, the dependence of mortgage real estate investment trusts (REITs) on short-term funding amplified market disruption in March 2020. However, other liquidity pressures had only minor repercussions for the overall mortgage market because of reforms since the GFC, a heavy government presence, and strong house prices. The lackluster performance of the private-label mortgage-backed ...
Working Paper
Government-Sponsored Mortgage Securitization and Financial Crises
This paper analyzes a model of the mortgage market, considering scenarios with and without government-sponsored mortgage securitization. Conventional wisdom says that securitization, by fostering diversification and creating a “safe†asset in the form of mortgage-backed security (MBS), will reduce risk and enhance liquidity, thereby mitigating financial crises. We construct a strategic-game framework to model the interaction between the securitizer and banks. In this framework, the securitizer initiates the process by setting the MBS contract terms, which includes the guaranteed ...