Testing for Information Asymmetry in the Mortgage Servicing Market

57 Pages Posted: 3 Apr 2019

See all articles by Helmi Jedidi

Helmi Jedidi

HEC Montreal

Georges Dionne

HEC Montreal - Department of Finance

Date Written: March 12, 2019

Abstract

Our main objective is to test for evidence of information asymmetry in the mortgage servicing market. Does the sale of mortgage servicing rights (MSR) by the initial lender to a second servicing institution unveil any residual asymmetric information? We analyze the originator’s selling choice of MSR using a large sample of U.S. mortgages that were privately securitized during the period of January 2000 to December 2013 (more than 5 million observations). Our econometric methodology is mainly non-parametric and the main test for the presence of information asymmetry is driven by kernel density estimation techniques (Su and Spindler, 2013). We also employ the non-parametric testing procedure of Chiappori and Salanié (2000). For robustness, we present parametric tests to corroborate our results after controlling for observable risk characteristics, for econometric misspecification error, and for endogeneity issues using instrumental variables. Our empirical results provide strong support for the presence of second-stage asymmetric information in the mortgage servicing market.

Keywords: mortgage servicing market, mortgage servicing right, information asymmetry test, MSR-purchaser, parametric model, non-parametric model, kernel estimation, instrumental variable

JEL Classification: C14, C23, C26, G14, G21, G33

Suggested Citation

Jedidi, Helmi and Dionne, Georges, Testing for Information Asymmetry in the Mortgage Servicing Market (March 12, 2019). Available at SSRN: https://ssrn.com/abstract=3351417 or http://dx.doi.org/10.2139/ssrn.3351417

Helmi Jedidi

HEC Montreal ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada
+15146277500 (Phone)

Georges Dionne (Contact Author)

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada
514-340-6596 (Phone)
514-340-5019 (Fax)

HOME PAGE: http://www.hec.ca/gestiondesrisques/

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