Abstract

http://ssrn.com/abstract=1615613
 
 

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MBS Ratings and the Mortgage Credit Boom


Adam B. Ashcraft


Federal Reserve Bank of New York

Paul Goldsmith-Pinkham


Federal Reserve Banks - Federal Reserve Bank of New York

James I. Vickery


Federal Reserve Bank of New York

May 14, 2010

FRB of New York Staff Report No. 449
European Banking Center Discussion Paper No. 2010-24S
CentER Discussion Paper Series No. 2010-89S

Abstract:     
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 observe underperformance (high mortgage defaults and losses and large rating downgrades) among deals with observably higher risk mortgages based on a simple ex ante model and deals with a high fraction of opaque low-documentation loans. These findings hold over the entire sample period, not just for deal cohorts most affected by the crisis.

Number of Pages in PDF File: 59

Keywords: Credit Rating Agencies, Subprime Crisis, Mortgage-Backed Securities

JEL Classification: G01, G21, G24

working papers series





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Date posted: May 25, 2010 ; Last revised: August 29, 2010

Suggested Citation

Ashcraft, Adam B. and Goldsmith-Pinkham, Paul and Vickery, James I., MBS Ratings and the Mortgage Credit Boom (May 14, 2010). FRB of New York Staff Report No. 449; European Banking Center Discussion Paper No. 2010-24S; CentER Discussion Paper Series No. 2010-89S. Available at SSRN: http://ssrn.com/abstract=1615613 or http://dx.doi.org/10.2139/ssrn.1615613

Contact Information

Adam B. Ashcraft
Federal Reserve Bank of New York ( email )
33 Liberty Street
New York, NY 10045-0001
United States
212-720-1617 (Phone)
212-720-8363 (Fax)
Paul Goldsmith-Pinkham
Federal Reserve Banks - Federal Reserve Bank of New York ( email )
33 Liberty Street
New York, NY 10045
United States
James Ian Vickery (Contact Author)
Federal Reserve Bank of New York ( email )
33 Liberty Street
New York, NY 10045
United States
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