Nonparametric Testing for Information Asymmetry in the Mortgage Servicing Market

65 Pages Posted: 3 Apr 2019 Last revised: 29 Oct 2019

See all articles by Helmi Jedidi

Helmi Jedidi

HEC Montreal

Georges Dionne

HEC Montreal - Department of Finance

Date Written: October 28, 2019

Abstract

Our 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 are the first to analyze the originator’s selling choice of MSR. We use a large sample of U.S. mortgages that were securitized through the private-label channel during the period of January 2000 to December 2013 (more than 5 million observations). We propose a new nonparametric instrumental variable testing procedure to account for potential endogeneity. For robustness, we present parametric analyses to corroborate our results 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, securitization, information asymmetry test, parametric model, nonparametric model, kernel estimation, instrumental variable, causality

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

Suggested Citation

Jedidi, Helmi and Dionne, Georges, Nonparametric Testing for Information Asymmetry in the Mortgage Servicing Market (October 28, 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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