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Securitization and the fixed-rate mortgage

Andreas Fuster () and James Vickery ()

No 594, Staff Reports from Federal Reserve Bank of New York

Abstract: Fixed-rate mortgages (FRMs) dominate the U.S. mortgage market, with important consequences for monetary policy, household risk management, and financial stability. In this paper, we show that the share of FRMs is sharply lower when mortgages are difficult to securitize. Our analysis exploits plausibly exogenous variation in access to liquid securitization markets generated by a regulatory cutoff and time variation in private securitization activity. We interpret our findings as evidence that lenders are reluctant to retain the prepayment and interest rate risk embedded in FRMs. The form of securitization (private versus government-backed) has little effect on FRM supply during periods when private securitization markets are well-functioning.

Keywords: mortgage finance; securitization; regression discontinuity design; difference-indifferences (search for similar items in EconPapers)
JEL-codes: E44 G18 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban and nep-ure
Date: 2013, Revised 2014-06-01
Note: For a published version of this report, see Andreas Fuster and James Vickery, "Securitization and the Fixed-Rate Mortgage," Review of Financial Studies 28, no. 1 (January 2015): 176-211.
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