Nonparametric Testing for Information Asymmetry in the Mortgage Servicing Market
65 Pages Posted: 3 Apr 2019 Last revised: 29 Oct 2019
Date Written: October 28, 2019
Abstract
Our objective is to test for evidence of information asymmetry in the mortgage servicing market. Does the sale of mortgage servicing rights (MSR) by the initial lender to a second servicing institution unveil any residual asymmetric information? We are the first to analyze the originator’s selling choice of MSR. We use a large sample of U.S. mortgages that were securitized through the private-label channel during the period of January 2000 to December 2013 (more than 5 million observations). We propose a new nonparametric instrumental variable testing procedure to account for potential endogeneity. For robustness, we present parametric analyses to corroborate our results using instrumental variables. Our empirical results provide strong support for the presence of second-stage asymmetric information in the mortgage servicing market
Keywords: Mortgage servicing market, securitization, information asymmetry test, parametric model, nonparametric model, kernel estimation, instrumental variable, causality
JEL Classification: C14, C23, C26, G14, G21, G33
Suggested Citation: Suggested Citation