Mortgage Securitization and Information Frictions in General Equilibrium

Salomon Garcia-Villegas

Review of Economic Dynamics, 2026, vol. 61

Abstract: We develop a quantitative general equilibrium model of the U.S. mortgage market where securitization, as a technology, links the credit and asset-backed security markets. Heterogeneous lenders trade in a securitization market subject to adverse selection: originators are privately informed about loan quality, while buyers anticipate a higher share of low-quality loans when household defaults rise. This friction generates an information-friction multiplier: a feedback loop where surges in household defaults drive down security prices, reduce lender liquidity, and contract mortgage credit supply. Applied to the Global Financial Crisis (GFC), the model reproduces two-thirds of the observed contraction in mortgage credit and the collapse of mortgage-backed security issuance, with information frictions amplifying the credit contraction by a factor of roughly 1.2. We use the framework to evaluate post-GFC credit guarantee policies. Post-GFC pricing stabilizes credit but generates a fiscal deficit. Pricing guarantees to reflect the amplification effects of information frictions eliminates the deficit and delivers welfare gains for both borrowers and lenders. (Copyright: Elsevier)

Date: 2026
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Working Paper: Mortgage securitization and information frictions in general equilibrium (2022)
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DOI: 10.1016/j.red.2026.101342

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