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Keywords:securitization 

Working Paper
Agency Conflicts in Residential Mortgage Securitization: What Does the Empirical Literature Tell Us?

The agency conflicts inherent in securitization are viewed by many as having been a key contributor to the recent financial crisis, despite the presence of various legal and economic constructs to mitigate them. A review of recent empirical research for the U.S. home mortgage market suggests that securitization itself may not have been a problem, but rather the origination and distribution of observably riskier loans. Low-documentation mortgages, for which asymmetric information problems are acute, performed especially poorly during the crisis. Securitized low-documentation mortgages ...
FRB Atlanta Working Paper , Paper 2017-1

Journal Article
Credit risk transfer and de facto GSE reform

The Fannie Mae and Freddie Mac credit risk transfer (CRT) programs, now in their fifth year, shift a portion of credit risk on more than $1.8 trillion of mortgages to private-sector investors. This study summarizes and evaluates the CRT programs, finding that they have been successful in reducing the exposure of the government-sponsored enterprises and the federal government to mortgage credit risk without disrupting the liquidity or stability of mortgage secondary markets. The programs have also created a new financial market for pricing and trading mortgage credit risk, which has grown in ...
Economic Policy Review , Issue 24-3 , Pages 88-116

Journal Article
Peas in a pod? Comparing the U.S. and Danish mortgage finance systems

Like the United States, Denmark relies heavily on capital markets for funding residential mortgages, and its covered bond market bears a number of similarities to U.S. agency securitization. This article describes the key features of the Danish mortgage finance system and compares and contrasts them with those of the U.S. system. In addition, it highlights characteristics of the Danish model that may be of interest as the United States considers further mortgage finance reform. In particular, the Danish system includes features that mitigate refinancing frictions during periods of falling ...
Economic Policy Review , Issue 24-3 , Pages 63-87

Discussion Paper
The Role of Bank Credit Enhancements in Securitization

As Nicola Cetorelli observes in his introductory post, securitization is a key element of the evolution from banking to shadow banking. Recognizing that raises the central question in this series: Does the rise of securitization (and shadow banking) signal the decline of traditional banking? Not necessarily, because banks can play a variety of background (or foreground) roles in the securitization process. In our published contribution to the series, we look at the role of banks in providing credit enhancements. Credit enhancements are protection in the form of financial support against ...
Liberty Street Economics , Paper 20120718

Report
The mortgage rate conundrum

We document the emergence of a disconnect between mortgage and Treasury interest rates in the summer of 2003. Following the end of the Federal Reserve?s expansionary cycle in June 2003, mortgage rates failed to rise according to their historical relationship with Treasury yields, leading to significantly and persistently easier mortgage credit conditions. We uncover this phenomenon by analyzing a large data set with millions of loan-level observations, which allows us to control for the impact of varying loan, borrower, and geographic characteristics. These detailed data also reveal that ...
Staff Reports , Paper 829

Working Paper
The Effect of Large Investors on Asset Quality: Evidence from Subprime Mortgage Securities

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 ...
FRB Atlanta Working Paper , Paper 2014-4

Working Paper
Unconventional Monetary Policy and Risk-Taking: Evidence from Agency Mortgage REITs

We study how the Federal Reserve's quantitative easing (QE) influenced the behavior of Agency mortgage real estate investment trusts (REITs)?a set of institutions identified by the Financial Stability Oversight Council as posing systemic risk. We document that Agency mortgage REITs: [i] equity prices reacted to QE announcements and in a manner consistent with their business prospects; [ii] grew markedly during QE2 and receded during QE3 in relation to the Federal Reserve's Agency MBS purchase activity; and [iii] increased their leverage during QE3. Our findings are consistent with ...
FRB Atlanta Working Paper , Paper 2018-8

Working Paper
Securitization and mortgage default

We find that private-securitized loans perform worse than observably similar, nonsecuritized loans, which provides evidence for adverse selection. The effect of securitization is strongest for prime mortgages, which have not been studied widely in the previous literature and particular prime adjustable-rate mortgages (ARMs): These become delinquent at a 30 percent higher rate when privately securitized. By contrast, our baseline estimates for subprime mortgages show that private-securitized loans default at lower rates. We show, however, that ?early defaulting loans? account for this: those ...
Working Papers , Paper 15-15

Report
Securitization and the fixed-rate mortgage

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 ...
Staff Reports , Paper 594

Working Paper
Large-Scale Buy-to-Rent Investors in the Single-Family Housing Market: The Emergence of a New Asset Class?

In 2012, several large firms began purchasing single-family homes with the stated intention of creating large portfolios of rental property. We present the first systematic evidence on how this new investor activity differs from that of other investors in the housing market. Many aspects of buy-to-rent investor behavior are consistent with holding property for rent rather than reselling quickly. Additionally, the large size of these investors imparts a few important advantages. In the short run, this investment activity appears to have supported house prices in the areas where it is ...
Finance and Economics Discussion Series , Paper 2015-84

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