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Securitization and mortgage default

Ronel Elul
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Ronel Elul: Federal Reserve Bank of Philadelphia

No 15-15, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: We find that private-securitized loans perform worse than observably similar, nonsecuritized loans, which provides evidence for adverse selection. The effect of securitization is strongest for prime mortgages, which have not been studied widely in the previous literature and particular prime adjustable-rate mortgages (ARMs): These become delinquent at a 30 percent higher rate when privately securitized. By contrast, our baseline estimates for subprime mortgages show that private-securitized loans default at lower rates. We show, however, that “early defaulting loans” account for this: those that were so risky that they defaulted before they could be securitized. This version supersedes WP 09-21.

Keywords: Mortgage default; securitization; adverse selection (search for similar items in EconPapers)
JEL-codes: D82 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pke and nep-ure
Date: 2015-03-25
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