The Effects of Securitization on Mortgage Market Yields: A Cointegration Analysis

17 Pages Posted: 24 Oct 1998

See all articles by James W. Kolari

James W. Kolari

Texas A&M University - Department of Finance

Donald R. Fraser

Texas A&M University - Department of Finance

Ali Anari

Texas A&M University - Mays Business School

Abstract

Securitization of the residential mortgage market has completely transformed the process of financing home loans in the U.S. over the last two decades. We examine the effects of securitization on yield spreads in the primary mortgage market. Cointegration techniques are employed to test the relationship between the increasing volume of mortgage securities over time and the yield spread on mortgage loan rates. We find that a 10 percent increase in the level of mortgage securitization as a proportion of total mortgage originations decreases yield spreads on home loans by as much as 20 basis points. Other results indicate that, while prepayment speed has a significant effect on mortgage yield spreads, default risk does not. We conclude that securitization of the residential mortgage market plays an important role in decreasing the cost of home loans.

JEL Classification: G21

Suggested Citation

Kolari, James W. and Fraser, Donald R. and Anari, Ali, The Effects of Securitization on Mortgage Market Yields: A Cointegration Analysis. Real Estate Economics, Vol. 26, No. 4, 1998. Available at SSRN: https://ssrn.com/abstract=124008

James W. Kolari (Contact Author)

Texas A&M University - Department of Finance ( email )

MS-4218
Department of Finance
College Station, TX TX 77843-4218
United States
979-845-4803 (Phone)
979-845-3884 (Fax)

Donald R. Fraser

Texas A&M University - Department of Finance ( email )

430 Wehner
College Station, TX 77843-4218
United States
979-845- 2020 (Phone)

Ali Anari

Texas A&M University - Mays Business School ( email )

Wehner 401Q, MS 4353
College Station, TX 77843-4218
United States
979-845-2094 (Phone)
979-845-0460 (Fax)

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