Securitization and Screening Incentives: Evidence from Mortgage Processing Time

47 Pages Posted: 6 Mar 2018 Last revised: 11 Aug 2019

See all articles by Dong Beom Choi

Dong Beom Choi

Seoul National University - Business School

Jung-Eun Kim

Federal Reserve Banks - Federal Reserve Bank of Richmond

Date Written: March 6, 2018

Abstract

We test whether lenders' screening incentives weaken when faced with the possibility of loan sales. We adopt a new measure of lending standards, mortgage application processing time at the loan level, and use the collapse of the non-agency mortgage-backed securities issuance market as a natural experiment. The event significantly reduced liquidity for non-conforming loans, but had little impact on conforming loans. Following the collapse, lenders spent significantly more time screening applications for loans larger than the conforming loan limits than those below. The processing time gap widened more for banks with lower capital, greater involvement in the originate-to-distribute model, and larger assets.

Keywords: incentive misalignment, lending standard, loan sale, securitization, mortgage lending

JEL Classification: G20, G21

Suggested Citation

Choi, Dong Beom and Kim, Jung-Eun, Securitization and Screening Incentives: Evidence from Mortgage Processing Time (March 6, 2018). Available at SSRN: https://ssrn.com/abstract=3135292 or http://dx.doi.org/10.2139/ssrn.3135292

Dong Beom Choi (Contact Author)

Seoul National University - Business School ( email )

Seoul
Korea, Republic of (South Korea)

Jung-Eun Kim

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

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