Securitization and the Fixed-Rate Mortgage
Federal Reserve Banks - Federal Reserve Bank of New York
James I. Vickery
Federal Reserve Bank of New York
FRB of New York Staff Report No. 594
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 securitization (private versus government-backed) has little effect on FRM supply during periods when private securitization markets are well-functioning.
Number of Pages in PDF File: 77
Keywords: mortgage finance, securitization, difference-in-differences, regression discontinuity design
JEL Classification: E44, G18, G21
Date posted: January 9, 2013 ; Last revised: July 4, 2014
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