Assessing the effectiveness of the Paulson "Teaser Freezer" plan: evidence from the ABX index

Eliana Balla, Robert E. Carpenter () and Breck Robinson

No 09-07, Working Paper from Federal Reserve Bank of Richmond

Abstract: How did investors holding assets backed by subprime residential mortgages react when Treasury Secretary Paulson announced the so-called "teaser freezer" plan to modify mortgages in December 2007? We apply event-study methodology to the ABX index, the only source of daily securities prices in subprime mortgage markets. Our results show investors in the ABX initially perceived that the plan would improve conditions in the subprime housing markets, but results from a longer event window show this positive effect was swamped by continued deterioration in housing markets. The positive effects of the plan disappear for junior tranche securities in recent vintages, consistent with poorer quality collateral pools.

Keywords: Mortgages; Subprime mortgage (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ure
Date: 2009
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