The Determinants of Mortgage Yield Spread Differentials: Securitization

Abstract

This paper examines securitization and mortgage yield spread differentials among four groups of Australian mortgage providers: mortgage corporations, commercial banks, building societies and credit unions. The dataset includes over 2000 observations of standard adjustable rate mortgages from 180 institutions. Several studies on the impact of securitization (e.g., reduced funding costs, information costs, agency costs, regulatory tax and improved mortgage marketability and liquidity) can be found, but there is a little empirical evidence, particularly in an Australian context. Our results suggest that mortgage corporations that securitize all their loans have both the narrowest nominal and effective yield spreads among the four groups, consistent with the existing securitization and rates literature. The regression findings also indicate that both minimum and maximum amounts of loans are significantly associated with spreads.

Keywords: Securitization, Information asymmetry, Yield spreads, Mortgage lenders