The Effect of Large Investors on Asset Quality: Evidence from Subprime Mortgage Securities

56 Pages Posted: 27 Jul 2014 Last revised: 27 Sep 2016

Manuel Adelino

Duke University; Duke Innovation & Entrepreneurship Initiative; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

W. Scott Frame

Federal Reserve Bank of Atlanta

Kristopher Gerardi

Federal Reserve Bank of Atlanta

Multiple version iconThere are 2 versions of this paper

Date Written: August 25, 2016

Abstract

This paper examines how Fannie Mae and Freddie Mac (the GSEs), the dominant investors in subprime mortgage-backed securities before the 2008 financial crisis, affected the collateral composition in this market. Mortgages included in security pools designed for the GSEs performed better than those backing other securities in the same deals, holding observable risk constant. Consistent with the transmission of private information, these effects are concentrated in low documentation loans, and for issuers that were highly dependent on the GSEs and were corporate affiliates of the mortgage originators. Our results extend the importance of concentrated claimholders to information-insensitive arm's-length debt.

Keywords: mortgage default, GSEs, securitization, private information

JEL Classification: G17, G21, G23

Suggested Citation

Adelino, Manuel and Frame, W. Scott and Gerardi, Kristopher, The Effect of Large Investors on Asset Quality: Evidence from Subprime Mortgage Securities (August 25, 2016). Available at SSRN: https://ssrn.com/abstract=2472132 or http://dx.doi.org/10.2139/ssrn.2472132

Manuel Adelino

Duke University ( email )

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

W. Scott Frame

Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street, NE
Atlanta, GA 30309-4470
United States
404 498 8783 (Phone)
404 498 8810 (Fax)

Kristopher S. Gerardi (Contact Author)

Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States
404-498-8561 (Phone)

HOME PAGE: http://sites.google.com/site/kristophergerardishomepage/

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