WFA 2016 Park City, UT
71 Pages Posted: 15 Jun 2016 Last revised: 19 Jan 2020
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 and quantity of mortgage originations through non-banks. I show that an exogenous shock that increased creditor protection 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 can be managed by varying 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