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Report
A private lender cooperative model for residential mortgage finance
Wright, Joshua; Tracy, Joseph; Mosser, Patricia C.; Vickery, James; Dechario, Toni (2010-08-01)
We describe a set of six design principles for the reorganization of the U.S. housing finance system and apply them to one model for replacing Fannie Mae and Freddie Mac that has so far received frequent mention but little sustained analysis ? the lender cooperative utility. We discuss the pros and cons of such a model and propose a method for organizing participation in a mutual loss pool and an explicit, priced government insurance mechanism. We also discuss how these principles and this model are consistent with preserving the ?to-be-announced,? or TBA, market ? particularly if the ...
Staff Reports , Paper 466

Report
MBS ratings and the mortgage credit boom
Ashcraft, Adam B.; Vickery, James; Goldsmith-Pinkham, Paul (2010)
We study credit ratings on subprime and Alt-A mortgage-backed-securities (MBS) deals issued between 2001 and 2007, the period leading up to the subprime crisis. The fraction of highly rated securities in each deal is decreasing in mortgage credit risk (measured either ex ante or ex post), suggesting that ratings contain useful information for investors. However, we also find evidence of significant time variation in risk-adjusted credit ratings, including a progressive decline in standards around the MBS market peak between the start of 2005 and mid-2007. Conditional on initial ratings, we ...
Staff Reports , Paper 449

Discussion Paper
Why are Adjustable Rate Mortgages So Rare These Days?
Vickery, James (2011-05-11)
The fraction of mortgage borrowers who choose an adjustable-rate loan has fallen significantly over the past five years or so. Although the fraction edged up slightly in 2010, it remains close to historic lows, with less than 10 percent of mortgage originations since 2009 featuring an adjustable interest rate. What explains the striking decline? And what are its implications for borrowers and policymakers?
Liberty Street Economics , Paper 20110511

Discussion Paper
Rethinking Mortgage Design
Campbell, John; Lucca, David O.; Vickery, James; Van Nieuwerburgh, Stijn; Fuster, Andreas (2015-08-24)
Because mortgages make up the majority of household debt in most developed countries, mortgage design has important implications for macroeconomic policy and household welfare. As one example, most U.S. mortgages have fixed interest rates?if interest rates fall, existing borrowers need to refinance to lower their interest payments. In practice, households are often slow to refinance, or may not be able to do so. As a result, the transmission of U.S. monetary policy is dampened relative to countries like the United Kingdom where mortgage rates on most loans adjust automatically with short-term ...
Liberty Street Economics , Paper 20150824

Working Paper
Defragmenting Markets: Evidence from Agency MBS
Liu, Haoyang; Song, Zhaogang; Vickery, James (2021-06-24)
Agency mortgage-backed securities (MBS) issued by Fannie Mae and Freddie Mac have historically traded in separate forward markets. We study the consequences of this fragmentation, showing that market liquidity endogenously concentrated in Fannie Mae MBS, leading to higher issuance and trading volume, lower transaction costs, higher security prices, and a higher rate of return on securitization for Fannie Mae. We then analyze a change in market design – the Single Security Initiative – which consolidated Fannie Mae and Freddie Mac MBS trading into a single market in June 2019. We find that ...
Working Papers , Paper 21-25

Journal Article
Why is the market share of adjustable-rate mortgages so low?
Aragon, Diego; Vickery, James; Moench, Emanuel (2010-12)
Over the past several years, U.S. homebuyers have increasingly favored fixed-rate mortgages over adjustable-rate mortgages (ARMs). Indeed, ARMs have dropped to less than 10 percent of all residential mortgage originations, a near-record low. One might speculate that the decline in the ARM share has been driven by ?one-off? factors relating to the financial crisis. However, a statistical analysis suggests that recent trends can largely be explained by the same factors that have historically shaped mortgage choice?most notably, the term structure of interest rates and its effects on the ...
Current Issues in Economics and Finance , Volume 16 , Issue Dec

Journal Article
Credit risk transfer and de facto GSE reform
Strzodka, Andreas; Vickery, James; Finkelstein, David (2018-24-03)
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

Report
Credit risk transfer and de facto GSE reform
Strzodka, Andreas; Vickery, James; Finkelstein, David (2018-02-01)
We summarize and evaluate Fannie Mae and Freddie Mac?s credit risk transfer (CRT) programs, which have been used since 2013 to shift a portion of credit risk on more than $1.8 trillion of mortgages to private sector investors. We argue that the CRT programs have been successful in reducing the exposure of the federal government to mortgage credit risk without disrupting the liquidity or stability of mortgage secondary markets. In the process, the programs have created a new financial market for pricing and trading mortgage credit risk, which has grown in size and liquidity over time. The CRT ...
Staff Reports , Paper 838

Report
Recent Data on Mortgage Forbearance: Borrower Uptake and Understanding of Lender Accommodations
Lambie-Hanson, Lauren; Vickery, James; Akana, Tom (2021-03-04)
This research brief examines data relating to mortgage forbearance using responses to the January 2021 COVID-19 Survey of Consumers conducted by the Federal Reserve Bank of Philadelphia’s Consumer Finance Institute. We study a national sample of 1,172 homeowners with mortgages, who reported the current and past forbearance status of their mortgage and other household credit accounts, discussed their familiarity with and understanding of lender accommodations that might be available to them, and provided their demographic characteristics. Respondents characterize their current employment ...
Consumer Finance Institute Research Briefs and Special Reports

Working Paper
How Resilient Is Mortgage Credit Supply? Evidence from the COVID-19 Pandemic
Willen, Paul S.; Vickery, James; Fuster, Andreas; Hizmo, Aurel; Lambie-Hanson, Lauren (2021-05-27)
We study the evolution of US mortgage credit supply during the COVID-19 pandemic. Although the mortgage market experienced a historic boom in 2020, we show there was also a large and sustained increase in intermediation markups that limited the pass-through of low rates to borrowers. Markups typically rise during periods of peak demand, but this historical relationship explains only part of the large increase during the pandemic. We present evidence that pandemic-related labor market frictions and operational bottlenecks contributed to unusually inelastic credit supply, and that ...
Working Papers , Paper 21-20

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