Nonparametric Testing for Information Asymmetry in the Mortgage Servicing Market

Helmi Jedidi and Georges Dionne ()
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Helmi Jedidi: Risk Management and Finance Department, HEC Montreal, Montréal, QC H3T 2A7, Canada

Risks, 2024, vol. 12, issue 12, 1-40

Abstract: Our objective is to test for evidence of information asymmetry in the mortgage servicing market. Does the sale of mortgage servicing rights (MSR) by the initial lender to a second servicing institution unveil any residual asymmetric information? We are the first to analyze the originator’s selling choice of MSR. We use a large sample of U.S. mortgages that were securitized through the private-label channel during the period of January 2000 to December 2013 (more than 5 million observations). We propose a new nonparametric instrumental variable testing procedure to account for potential endogeneity. For robustness, we present parametric analyses to corroborate our results using instrumental variables. Our empirical results provide strong support for the presence of second-stage asymmetric information in the mortgage servicing market during the period of analysis and before the risk retention reform of 2014.

Keywords: mortgage servicing market; securitization; information asymmetry test; parametric model; nonparametric model; kernel estimation; instrumental variable; causality (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2024
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Related works:
Working Paper: Nonparametric testing for information asymmetry in the mortgage servicing market (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:gam:jrisks:v:12:y:2024:i:12:p:192-:d:1533390

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