Search Results
Showing results 1 to 8 of approximately 8.
(refine search)
Report
Payment size, negative equity, and mortgage default
Surprisingly little is known about the importance of mortgage payment size for default, as efforts to measure the treatment effect of rate increases or loan modifications are confounded by borrower selection. We study a sample of hybrid adjustable-rate mortgages that have experienced substantial rate reductions over the past years and are largely immune to these selection concerns. We find that payment size has an economically large effect on repayment behavior; for instance, cutting the required payment in half reduces the delinquency hazard by about 55 percent. Importantly, the link between ...
Working Paper
The Mortgage Prepayment Decision: Are There Other Motivations Beyond Refinance and Move?
Borrowers terminate residential mortgages for a variety of reasons. Prepayments and defaults have always been distinguishable, and researchers have recently distinguished between prepayments involving a move and other prepayments. But these categories still combine distinct decisions. For example, a borrower may refinance to obtain a lower interest rate or to borrow a larger amount. By matching mortgage servicing and credit bureau records, we are able to distinguish among several motivations for prepayment: simple refinancing, cash-out refinancing, mortgage payoff, and move. Using multinomial ...
Working Paper
The Behavioral Relationship Between Mortgage Prepayment and Default
An implication of the dual trigger theory of default is that mortgage borrowers who experience an unexpected financial reverse will prepay their mortgage rather than default if their equity in the house is positive. We test this idea with a new data set created by matching mortgage servicing records and credit bureau records to classify prepayments by what happens subsequently. In particular, we can identify a subset of prepayments that seems consistent with the dual trigger theory. If the theory is correct, these prepayments should exhibit similarities to defaults in the data set rather than ...
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 ...
Report
Mortgage-Backed Securities
This paper reviews the mortgage-backed securities (MBS) market, with a particular emphasis on agency residential MBS in the United States. We discuss the institutional environment, security design, MBS risks and asset pricing, and the economic effects of mortgage securitization. We also assemble descriptive statistics about market size, growth, security characteristics, prepayment, and trading activity. Throughout, we highlight insights from the expanding body of academic research on the MBS market and mortgage securitization.
Working Paper
The time-varying price of financial intermediation in the mortgage market
The U.S. mortgage market links homeowners with savers all over the world. In this paper, we ask how much of the flow of money from savers to borrowers actually goes to the intermediaries that facilitate these transactions. Based on a new methodology and a new administrative dataset, we find that the price of intermediation, measured as a fraction of the loan amount at origination, is large?142 basis points on average over the 2008?2014 period. At daily frequencies, intermediaries pass on the price changes in the secondary market to borrowers in the primary market almost completely. At monthly ...
Report
The time-varying price of financial intermediation in the mortgage market
The U.S. mortgage market links homeowners with savers all over the world. In this paper, we ask how much of the flow of money from savers to borrowers goes to the intermediaries that facilitate these transactions. Based on a new methodology and a new administrative data set, we find that the price of intermediation, measured as a fraction of the loan amount at origination, is large?142 basis points on average over the 2008-14 period. At daily frequencies, intermediaries pass on price changes in the secondary market to borrowers in the primary market almost completely. At monthly frequencies, ...
Report
The capital structure and governance of a mortgage securitization utility
We explore the capital structure and governance of a mortgage-insuring securitization utility operating with government reinsurance for systemic or ?tail? risk. The structure we propose for the replacement of the GSEs focuses on aligning incentives for appropriate pricing and transfer of mortgage risks across the private sector and between the private sector and the government. We present the justification and mechanics of a vintage-based capital structure, and assess the components of the mortgage guarantee fee, whose size we find is most sensitive to the required capital ratio and the ...