The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis

Mian, Atif; Sufi, Amir

doi:10.2139/ssrn.1072304

Cited by 677 publications

(874 citation statements)

References 7 publications

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“…Contradictory evidence is found by Carey (1998); this study shows that the default rates on the loans kept by the issuer are lower than the default rates on the loans sold to other investors. Similarly, recent studies by Dell' Ariccia et al (2009), Mian andSufi (2009) and Keys et al (2010) find evidence that in the last decade US banks securitized their worst mortgage loans.…”

Section: Literature Reviewmentioning

confidence: 64%

Does securitization reduce credit risk taking? Empirical evidence from US bank holding companies

Casu

Clare

Sarkisyan

et al. 2011

The European Journal of Finance

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This study investigates the impact of securitization on the credit-risk taking behavior of banks. Using US bank holding company data from 2001 to 2007 we find that banks with a greater balance of outstanding securitized assets choose asset portfolios of lower credit risk. Examining securitizations by the type of underlying assets we find that the negative relationship between outstanding securitization and risk taking is primarily driven by securitizations of mortgages and home equity lines of credit. Securitizations of all other types of assets, on the other hand, seem to have no significant impact on bank credit-risk taking behavior. We attribute these results to the recourse commonly provided in securitization transactions that might alter the risk-taking appetite of the issuing banks across asset classes. Therefore, we conclude that the net impact of securitization on the risk-taking behavior of issuing banks, and consequently on the soundness of the banking system, is ambiguous and will depend on the transactions structure. In particular, it will depend on the relative magnitude of credit support provided by banks. This leads us to suggest that banks have typically viewed securitization as a financing rather than a risk management mechanism.

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Section: Literature Reviewmentioning

confidence: 64%

Does securitization reduce credit risk taking? Empirical evidence from US bank holding companies

Casu

Clare

Sarkisyan

et al. 2011

The European Journal of Finance

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“…This pro…t is increasing in the deterring rate r B `( equation (11)) which, in turn, is decreasing in the supremum `o f the agent's possible private types (equation (10)). However, we have not speci…ed how the 24 By de…nition, = E ( js priv ; s pub ;`) (p. 9).…”

Section: Resultsmentioning

confidence: 99%

“…expanded lending by connecting liquid investors with loan applicants. There is considerable evidence that the securitization boom in the 2000s led to expanded lending (Demyanyk and Van Hemert [12]; Krainer and Laderman [22]; Mian and Su… [24]). …”

Section: ])mentioning

confidence: 99%

Securitization and Lending Competition

Frankel

2015

Review of Economic Studies

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We study the effects of securitization on interbank lending competition when banks see private signals of local applicants' repayment chances. If banks cannot securitize, the outcome is efficient: they lend to their most creditworthy local applicants. With securitization, banks lend also to remote applicants with strong observables in order to lessen the lemons problem they face in selling their securities. This reliance on observables is inefficient, raises the mean default risk, and may lead to a deceptive rise in credit scores. AbstractWe study the e¤ects of securitization on interbank lending competition when banks see private signals of local applicants' repayment chances. If banks cannot securitize, the outcome is e¢ cient: they lend to their most creditworthy local applicants. With securitization, banks lend also to remote applicants with strong observables in order to lessen the lemons problem they face in selling their securities. This reliance on observables is ine¢ cient, raises the mean default risk, and may lead to a deceptive rise in credit scores. JEL: D82, G14, G21.

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“…This category of explanations includes "fads," such as Burnside, Eichenbaum, and Rebelo (2011), and subprime mortgages, such as Mian and Sufi (2009), since subprime mortgages were not prevalent in the 1980s. By contrast, Ferreira and Gyourko (2011) speculate that contagion could spread local housing booms to other areas.…”

Section: Resultsmentioning

confidence: 99%

House Price Moments in Boom-Bust Cycles

Sinai¹

2013

Housing and the Financial Crisis

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The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis

Cited by 677 publications

References 7 publications

Does securitization reduce credit risk taking? Empirical evidence from US bank holding companies

Does securitization reduce credit risk taking? Empirical evidence from US bank holding companies

Securitization and Lending Competition

House Price Moments in Boom-Bust Cycles

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