Securitization and Loan Performance: Ex Ante and Ex Post Relations in the Mortgage Market

Jiang, Wei; Nelson, Ashlyn Aiko; Vytlacil, Edward

doi:10.1093/rfs/hht073

Cited by 94 publications

(40 citation statements)

References 24 publications

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“…By contrast, among the two types of subprime loans, privately securitized mortgages actually performed better than other loans. However, this effect is found to be driven exclusively by loans defaulting during the first six months staying with originators, a result consistent with Jiang, Nelson, and Vytlacil (). The author also generally finds that low‐documentation, third‐party originations, and nonstandard product features generally defaulted at a significantly higher rate.…”

Section: Empirical Literature Reviewsupporting

confidence: 84%

“…Jiang, Nelson, and Vytlacil () study a sample of residential mortgage loans originated by a single lender between 2004 and 2008. Their sample loans were primarily securitized and cover various primary market segments (government, conventional conforming, jumbo, prime, subprime, Alt‐A, and second liens).…”

Section: Empirical Literature Reviewmentioning

confidence: 99%

“…The idea is to measure a "treatment effect" of securitization, which may be interpreted as reflecting unobserved private information about loan quality or underwriting effort. Jiang, Nelson, and Vytlacil (2013) use their sample of residential mortgage loans originated by a single lender between 2004 and 2008 that securitized a large fraction of the sample loans (89%). The authors find that after controlling for borrower and loan characteristics, sold mortgages performed better than those held on balance sheets, although the effect went away when "early payment defaults" were dropped.…”

Section: Are Securitized Loans More Likely To Default After Controllimentioning

confidence: 99%

See 2 more Smart Citations

Agency Conflicts in Residential Mortgage Securitization: What Does the Empirical Literature Tell Us?

Frame

2018

J of Financial Research

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. www.econstor.eu Abstract: The agency conflicts inherent in securitization are viewed by many as having been a key contributor to the recent financial crisis, despite the presence of various legal and economic constructs to mitigate them. A review of recent empirical research for the U.S. home mortgage market suggests that securitization itself may not have been a problem, but rather the origination and distribution of observably riskier loans. Low-documentation mortgages, for which asymmetric information problems are acute, performed especially poorly during the crisis. Securitized low-documentation mortgages performed better when included in deals where security issuers were affiliated with lenders or had significant reputational capital at stake and investors priced the risk of low-documentation loans via larger required equity tranches and/or higher security yields. Terms of use: Documents inJEL classification: G01, G21, G23, G28

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Section: Empirical Literature Reviewsupporting

confidence: 84%

Section: Empirical Literature Reviewmentioning

confidence: 99%

Section: Are Securitized Loans More Likely To Default After Controllimentioning

confidence: 99%

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Agency Conflicts in Residential Mortgage Securitization: What Does the Empirical Literature Tell Us?

Frame

2018

J of Financial Research

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“…Such income management-motivated loan origination is more likely to occur when banks believe that they can transfer more of the risks of the loans to securitization investors. While somewhat mixed, prior research evidence generally supports the idea that the loans that banks originate to securitize are riskier than the loans they originate to retain (Mian and Sufi [2009], Keys et al [2010], Jiang, Nelson, and Vytlacil [2014], Elul [2015]). In the period leading up to the financial crisis, banks were more likely to securitize subprime and lower documentation mortgages than other mortgages, and they exerted less effort to collect and evaluate soft borrower information for securitized mortgages.…”

Section: Securitizationsmentioning

confidence: 99%

“…Several studies find that banks’ retained loans performed the same as or worse than their securitized loans during the financial crisis. These findings appear to be primarily attributable to banks being forced to retain (contractually required to buy back) loans that exhibit delinquency immediately after origination (securitization) (Jiang, Nelson, and Vytlacil [], and studies cited in footnote 2 of that paper). This evidence does not conflict with the overall evidence summarized in the text; naturally, loans that banks originally intended to securitize but ultimately determine not to be securitizable perform worse than the loans they securitize.…”

mentioning

confidence: 99%

Banks’ Financial Reporting and Financial System Stability

Acharya

Ryan

2016

J of Accounting Research

291

152

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The use of accounting measures and disclosures in banks’ contracts and regulation suggests that the quality of banks’ financial reporting is central to the efficacy of market discipline and nonmarket mechanisms in limiting banks’ development of debt and risk overhangs in economic good times and in mitigating the adverse consequences of those overhangs for the stability of the financial system in downturns. This essay examines how research on banks’ financial reporting, informed by the financial economics literature on banking, can generate insights about how to enhance the stability of the financial system. We begin with a foundational discussion of how aspects of banks’ accounting and disclosures may affect stability. We then evaluate representative papers in the empirical literature on banks’ financial reporting and stability, pointing out the research design issues that empirical accounting researchers need to confront to develop well‐specified tests able to generate reliably interpretable findings. To this end, we provide examples of settings amenable to addressing these issues. We conclude with considerations for accounting standard setters and financial system policy makers.

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Securitization of assets with payment delay risk: A financial innovation in the real estate market

Zhang

Zhao

2023

Journal of Futures Markets

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We study a new type of securitization that deals with banks' processing time, mortgage-receivable-backed securities (MRBSs) issued by real estate developers. Unlike traditional mortgage-backed securities (MBSs), the major risk of underlying assets of MRBSs is payment delay instead of default and prepayment. Using unique loan-level data, we estimate proportional hazard models and detect factors that affect the risk of underlying assets of MRBSs, including bank characteristics, property-loan-household characteristics, local market conditions, and macroeconomic conditions. Especially, we find that the effects of house prices and loan-to-value ratios on MRBS risk are the opposite of those on traditional MBS risk. Based on the estimates, we simulate cash flows of an underlying-asset pool and analyze the shortfall risk of the corresponding security tranches. We find that the securitization process imposes a natural adverse selection on the underlying assets.

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Securitization and Loan Performance: Ex Ante and Ex Post Relations in the Mortgage Market

Cited by 94 publications

References 24 publications

Agency Conflicts in Residential Mortgage Securitization: What Does the Empirical Literature Tell Us?

Agency Conflicts in Residential Mortgage Securitization: What Does the Empirical Literature Tell Us?

Banks’ Financial Reporting and Financial System Stability

Securitization of assets with payment delay risk: A financial innovation in the real estate market

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