Securitization and Mortgage Default

38 Pages Posted: 2 Apr 2015

See all articles by Ronel Elul

Ronel Elul

Federal Reserve Bank of Philadelphia

Date Written: March 2015

Abstract

We find that private-securitized loans perform worse than observably similar, nonsecuritized loans, which provides evidence for adverse selection. The effect of securitization is strongest for prime mortgages, which have not been studied widely in the previous literature and particular prime adjustable-rate mortgages (ARMs): These become delinquent at a 30 percent higher rate when privately securitized. By contrast, our baseline estimates for subprime mortgages show that private-securitized loans default at lower rates. We show, however, that “early defaulting loans” account for this: those that were so risky that they defaulted before they could be securitized.

Keywords: Mortgage default, securitization, adverse selection

JEL Classification: D82, G21

Suggested Citation

Elul, Ronel, Securitization and Mortgage Default (March 2015). FRB of Philadelphia Working Paper No. 15-15. Available at SSRN: https://ssrn.com/abstract=2587931 or http://dx.doi.org/10.2139/ssrn.2587931

Ronel Elul (Contact Author)

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States
215-574-3965 (Phone)

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