Shadow Bank and Fintech Mortgage Securitization
49 Pages Posted: 15 Jul 2021 Last revised: 25 Apr 2022
Date Written: April 22, 2022
Agency MBS issuers can choose among three securitization venues: individual securitization where an issuer uses her own loans to create an MBS, collective securitization where different issuers deliver loans into a common MBS, and cash window where issuers sell loans to Fannie Mae or Freddie Mac who then conduct securitization. We find that issuers with great immediate liquidity needs (e.g., small issuers and shadow banks) prefer cash window that makes immediate payment. Moreover, issuers with relatively high-value loans (traditional banks) prefer individual securitization while issuers with relatively low-value loans (shadow banks, especially fintech issuers) prefer collective securitization; this is because high-value loans have to cross-subsidize low-value loans in uniform-pricing collective securitization but can obtain a separate pricing in individual securitization. Finally, securitization venues significantly affect the quantity and quality of the loans that issuers securitize.
Keywords: Agency MBS, Bank, Fintech, Liquidity, Securitization, Shadow Bank
JEL Classification: G2, L5
Suggested Citation: Suggested Citation