Mortgage-Backed Securities and the Financial Crisis of 2008: A Post Mortem
97 Pages Posted: 9 Apr 2018
Date Written: April 6, 2018
We examine the payoﬀ performance, up to the end of 2013, of non-agency residential mortgage-backed securities (RMBS), issued up to 2008. We have created a new and detailed data set on the universe of non-agency residential mortgage backed securities, per carefully assembling source data from Bloomberg and other sources. We compare these payoﬀs to their ex-ante ratings as well as other characteristics. We establish seven facts. First, the bulk of these securities was rated AAA. Second, AAA securities did ok: on average, their total cumulated losses up to 2013 are 2.3 percent. Third, the subprime AAA-rated segment did particularly well. Fourth, later vintages did worse than earlier vintages, except for subprime AAA securities. Fifth, the bulk of the losses were concentrated on a small share of all securities. Sixth, the misrating for AAA securities was modest. Seventh, controlling for a home price bust, a home price boom was good for the repayment on these securities. Together, these facts provide challenge the conventional narrative, that improper ratings of RMBS were a major factor in the ﬁnancial crisis of 2008.
Keywords: Mortgage-Backed Securities, MBS, ﬁnancial crisis of 2008, credit ratings
JEL Classification: G01, G21, G23, G24
Suggested Citation: Suggested Citation