Securitization of Assets with Payment Delay Risk: A Financial Innovation in the Real Estate Market

Ma, C., Zhang, H., & Zhao, H. (2023). Securitization of assets with payment delay risk: A financial innovation in the real estate market. The Journal of Futures Markets, 1–36. https://doi.org/10.1002/fut.22397

76 Pages Posted: 5 Sep 2020 Last revised: 30 Jan 2023

See all articles by Chao Ma

Chao Ma

WISE & SOE, Xiamen University

Multiple version iconThere are 2 versions of this paper

Date Written: July 29, 2020

Abstract

We study a new type of securitization that deals with banks’ processing time, mortgage-receivable-backed securities (MRBSs) issued by real estate developers. Unlike traditional mortgage-backed securities (MBSs), the major risk of underlying assets of MRBSs is payment delay instead of default and prepayment. Using unique loan-level data, we estimate proportional hazard models and detect factors that affect the risk of underlying assets of MRBSs, including bank characteristics, property-loan-household characteristics, local market conditions, and macroeconomic conditions. Especially, we find that the effects of house prices and LTVs on MRBS risk are the opposite of those on traditional MBS risk. Based on the estimates, we simulate cash flows of an underlying-asset pool and analyze the shortfall risk of the corresponding security tranches. We find that the securitization process imposes a natural adverse selection on the underlying assets.

Keywords: Securitization, Delay risk, Mortgage receivable, Banking, Real estate, Adverse selection, Financial innovation

JEL Classification: G1, G2, R3

Suggested Citation

Ma, Chao, Securitization of Assets with Payment Delay Risk: A Financial Innovation in the Real Estate Market (July 29, 2020). Ma, C., Zhang, H., & Zhao, H. (2023). Securitization of assets with payment delay risk: A financial innovation in the real estate market. The Journal of Futures Markets, 1–36. https://doi.org/10.1002/fut.22397, Available at SSRN: https://ssrn.com/abstract=3663266 or http://dx.doi.org/10.2139/ssrn.3663266

Chao Ma (Contact Author)

WISE & SOE, Xiamen University ( email )

A 307, Economics Building
Xiamen, Fujian 10246
China

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