Mortgage-Backed Securities and the Financial Crisis of 2008: A Post Mortem

97 Pages Posted: 9 Apr 2018  

Juan Ospina

University of Chicago

Harald Uhlig

University of Chicago - Department of Economics

Multiple version iconThere are 3 versions of this paper

Date Written: April 6, 2018

Abstract

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

Ospina, Juan and Uhlig, Harald, Mortgage-Backed Securities and the Financial Crisis of 2008: A Post Mortem (April 6, 2018). Becker Friedman Institute for Research in Economics Working Paper No. 2018-24. Available at SSRN: https://ssrn.com/abstract=3159552 or http://dx.doi.org/10.2139/ssrn.3159552

Juan Ospina (Contact Author)

University of Chicago ( email )

1101 East 58th Street
Chicago, IL 60637
United States

Harald Uhlig

University of Chicago - Department of Economics ( email )

1101 East 58th Street
Chicago, IL 60637
United States

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