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Testing for information asymmetry in the mortgage servicing market

Helmi Jedidi () and Georges Dionne
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Helmi Jedidi: HEC Montreal, Canada Research Chair in Risk Management

No 19-1, Working Papers from HEC Montreal, Canada Research Chair in Risk Management

Abstract: Our main 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 analyze the originator’s selling choice of MSR using a large sample of U.S. mortgages that were privately securitized during the period of January 2000 to December 2013 (more than 5 million observations). Our econometric methodology is mainly non-parametric and the main test for the presence of information asymmetry is driven by kernel density estimation techniques (Su and Spindler, 2013). We also employ the non-parametric testing procedure of Chiappori and Salanié (2000). For robustness, we present parametric tests to corroborate our results after controlling for observable risk characteristics, for econometric misspecification error, and for endogeneity issues using instrumental variables. Our empirical results provide strong support for the presence of second-stage asymmetric information in the mortgage servicing market.

Keywords: Mortgage servicing market; mortgage servicing right; information asymmetry test; MSR-purchaser; parametric model; non-parametric model; kernel estimation; instrumental variable. (search for similar items in EconPapers)
JEL-codes: C14 C23 C26 G14 G21 G33 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn and nep-ure
Date: 2019-03-12, Revised 2019-10-28
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