What Drives Screening Incentives in Non-bank Mortgage Originators?
WFA 2016 Park City, UT
71 Pages Posted: 15 Jun 2016 Last revised: 27 Aug 2021
Date Written: March 19, 2019
Non-bank mortgage originators, which operate through the originate-to-distribute (OTD) model, account for more than half of all the mortgage origination in the U.S. However, less is known about which factors drive the quality of mortgage originations through non-banks. I show that an exogenous shock that reduced collateral risk for funding intermediaries of non-bank mortgage originators led to a greater issuance of riskier mortgages that culminated in 10--30% higher ex post defaults. Overall, the results show how the quality of mortgage origination in the OTD model of non-banks is affected by the monitoring incentives of their funding intermediaries. These results contrast with the common view that non-bank mortgage originators generally lack screening incentives due to their over-reliance on the OTD market and lower regulatory oversight.
Keywords: Mortgages, Mortgage Companies, Securitization, Warehouse Financing, Repos, Repurchase Agreements, Bankruptcy, Bankruptcy Act, 2008 Financial Crisis
JEL Classification: G21, G23, G28, G32, G33
Suggested Citation: Suggested Citation