Securitization and the Fixed-Rate Mortgage
77 Pages Posted: 9 Jan 2013 Last revised: 4 Jul 2014
Date Written: June 2014
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.
Keywords: mortgage finance, securitization, difference-in-differences, regression discontinuity design
JEL Classification: E44, G18, G21
Suggested Citation: Suggested Citation