Deal Complexity, Default Risk and the Resilience of the Mortgage-Backed Securities Market

53 Pages Posted: 27 Apr 2021 Last revised: 26 Jul 2021

See all articles by Monica Billio

Monica Billio

University of Venice - Department of Economics; Ca Foscari University of Venice - Dipartimento di Economia

Alfonso Dufour

ICMA Centre, Henley Business School, University of Reading

Samuele Segato

ICMA Centre, Henley Business School, University of Reading

Simone Varotto

ICMA Centre - Henley Business School, University of Reading

Date Written: May 12, 2021

Abstract

We study the impact that lower complexity in bank securitisations has on mortgage quality before and during the COVID-19 pandemic. We find that mortgages issued after the introduction of the new European regulation in 2018 that aims to reduce deal complexity are characterised by up to 0.10% lower delinquency rates before the COVID-19 crisis. Similarly, during the pandemic, while results are heterogeneous across countries and borrower characteristics, we show that mortgage securitisations that meet the new “simplicity, transparency and standardisation” (STS) criteria, have 0.21% lower delinquency rates.

Overall, our findings suggest that the new European securitisation regulation has contributed to improving the credit quality of the securitisation market in Europe, eventually increasing its resilience towards the adverse shocks of the COVID-19 pandemic.

Keywords: Asset-Backed Securities, STS Securitisation, Residential Mortgage-Backed Securities, Default Risk, COVID-19 pandemic

JEL Classification: G18, G21, G28

Suggested Citation

Billio, Monica and Billio, Monica and Dufour, Alfonso and Segato, Samuele and Varotto, Simone, Deal Complexity, Default Risk and the Resilience of the Mortgage-Backed Securities Market (May 12, 2021). Available at SSRN: https://ssrn.com/abstract=3834491 or http://dx.doi.org/10.2139/ssrn.3834491

Monica Billio

University of Venice - Department of Economics ( email )

Fondamenta San Giobbe 873
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Italy
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Ca Foscari University of Venice - Dipartimento di Economia ( email )

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Venice, 30121
Italy

HOME PAGE: http://www.unive.it/persone/billio

Alfonso Dufour

ICMA Centre, Henley Business School, University of Reading ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

Samuele Segato (Contact Author)

ICMA Centre, Henley Business School, University of Reading ( email )

Whiteknight Park
P.O Box 242
Reading, RG6 6BA
United Kingdom

Simone Varotto

ICMA Centre - Henley Business School, University of Reading ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

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