Abstract

http://ssrn.com/abstract=2198392
 
 

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Securitization and the Fixed-Rate Mortgage


Andreas Fuster


Federal Reserve Banks - Federal Reserve Bank of New York

James I. Vickery


Federal Reserve Bank of New York

January 1, 2013

FRB of New York Staff Report No. 594

Abstract:     
Fixed-rate mortgages (FRMs) dominate the U.S. mortgage market, with important consequences for household risk management, monetary policy, and systemic risk. In this paper, we show that securitization is a key driver of FRM supply. Our analysis compares the agency and nonagency mortgage-backed-securities (MBS) markets, exploiting the freeze in nonagency MBS liquidity in the third quarter of 2007. Using exogenous variation in access to the agency MBS market, we find that when both market segments are liquid they perform similarly in terms of supporting FRM supply. However, after the nonagency market freezes, the share of FRMs is sharply higher among mortgages eligible to be securitized through the still-liquid agency MBS market. Our interpretation is that securitization is particularly important for FRMs because of the prepayment and interest rate risk embedded in these loans. We highlight policy implications for ongoing reform of the U.S. mortgage finance system.

Number of Pages in PDF File: 60

Keywords: mortgage finance, difference-in-differences, securitizations, regression discontinuity design

JEL Classification: E44, G18, G21

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Date posted: January 9, 2013  

Suggested Citation

Fuster, Andreas and Vickery, James I., Securitization and the Fixed-Rate Mortgage (January 1, 2013). FRB of New York Staff Report No. 594. Available at SSRN: http://ssrn.com/abstract=2198392 or http://dx.doi.org/10.2139/ssrn.2198392

Contact Information

Andreas Fuster (Contact Author)
Federal Reserve Banks - Federal Reserve Bank of New York ( email )
33 Liberty Street
New York, NY 10045
United States
James Ian Vickery
Federal Reserve Bank of New York ( email )
33 Liberty Street
New York, NY 10045
United States
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