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

Journal of Futures Markets, 43(4), 480-515, 2023​

76 Pages Posted: 2 Aug 2023

See all articles by Chao Ma

Chao Ma

WISE & SOE, Xiamen University

Hao Hao

Guangzhou Rongshan Information Technology Co., Ltd.

Hongbiao Zhao

Shanghai University of Finance and Economics; London School of Economics & Political Science (LSE)

Multiple version iconThere are 2 versions of this paper

Date Written: Jan 29, 2023

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 and Zhang, Hao and Zhao, Hongbiao, Securitization of Assets with Payment Delay Risk: A Financial Innovation in the Real Estate Market (Jan 29, 2023). Journal of Futures Markets, 43(4), 480-515, 2023​, Available at SSRN: https://ssrn.com/abstract=4525869

Chao Ma

WISE & SOE, Xiamen University ( email )

A 307, Economics Building
Xiamen, Fujian 10246
China

Hao Zhang

Guangzhou Rongshan Information Technology Co., Ltd. ( email )

No. 1 Country Garden Road
Foshan, Guangdong 528311
China

Hongbiao Zhao (Contact Author)

Shanghai University of Finance and Economics ( email )

No. 777 Guoding Road
Yangpu District
Shanghai, Shanghai 200433
China

HOME PAGE: http://hongbiaozhao.weebly.com/

London School of Economics & Political Science (LSE)

Houghton Street
London, WC2A 2AE
United Kingdom

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