Abstract
This article develops a model of the interactions between borrowers, originators, and a securitizer in primary and secondary mortgage markets. In the secondary market, the securitizer adds liquidity and plays a strategic game with mortgage originators. The securitizer sets the price at which it will purchase mortgages and the credit-score standard that qualifies a mortgage for purchase. We investigate two potential links between securitization and mortgage rates. First, we analyze whether a portion of the liquidity premium gets passed on to borrowers in the form of a lower mortgage rate. Somewhat surprisingly, we find very plausible conditions under which securitization fails to lower the mortgage rate. Second, and consistent with recent empirical results, we derive an inverse correlation between the volume of securitization and mortgage rates. However, the causation is reversed from the standard rendering. In our model, a decline in the mortgage rate causes increased securitization rather than the other way around.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 337-363 |
| Number of pages | 27 |
| Journal | Journal of Real Estate Finance and Economics |
| Volume | 23 |
| Issue number | 3 |
| DOIs | |
| State | Published - Dec 1 2001 |
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Keywords
- Credit availability
- Credit scoring
- Mortgage rate determination
- Mortgage securitization
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics
- Urban Studies
Cite this
Credit Scoring and Mortgage Securitization : Implications for Mortgage Rates and Credit Availability. / Heuson, Andrea; Passmore, Wayne; Sparks, Roger.
In: Journal of Real Estate Finance and Economics, Vol. 23, No. 3, 01.12.2001, p. 337-363.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - Credit Scoring and Mortgage Securitization
T2 - Implications for Mortgage Rates and Credit Availability
AU - Heuson, Andrea
AU - Passmore, Wayne
AU - Sparks, Roger
PY - 2001/12/1
Y1 - 2001/12/1
N2 - This article develops a model of the interactions between borrowers, originators, and a securitizer in primary and secondary mortgage markets. In the secondary market, the securitizer adds liquidity and plays a strategic game with mortgage originators. The securitizer sets the price at which it will purchase mortgages and the credit-score standard that qualifies a mortgage for purchase. We investigate two potential links between securitization and mortgage rates. First, we analyze whether a portion of the liquidity premium gets passed on to borrowers in the form of a lower mortgage rate. Somewhat surprisingly, we find very plausible conditions under which securitization fails to lower the mortgage rate. Second, and consistent with recent empirical results, we derive an inverse correlation between the volume of securitization and mortgage rates. However, the causation is reversed from the standard rendering. In our model, a decline in the mortgage rate causes increased securitization rather than the other way around.
AB - This article develops a model of the interactions between borrowers, originators, and a securitizer in primary and secondary mortgage markets. In the secondary market, the securitizer adds liquidity and plays a strategic game with mortgage originators. The securitizer sets the price at which it will purchase mortgages and the credit-score standard that qualifies a mortgage for purchase. We investigate two potential links between securitization and mortgage rates. First, we analyze whether a portion of the liquidity premium gets passed on to borrowers in the form of a lower mortgage rate. Somewhat surprisingly, we find very plausible conditions under which securitization fails to lower the mortgage rate. Second, and consistent with recent empirical results, we derive an inverse correlation between the volume of securitization and mortgage rates. However, the causation is reversed from the standard rendering. In our model, a decline in the mortgage rate causes increased securitization rather than the other way around.
KW - Credit availability
KW - Credit scoring
KW - Mortgage rate determination
KW - Mortgage securitization
UR - http://www.scopus.com/inward/record.url?scp=0035624331&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=0035624331&partnerID=8YFLogxK
U2 - 10.1023/A:1017952120081
DO - 10.1023/A:1017952120081
M3 - Article
AN - SCOPUS:0035624331
VL - 23
SP - 337
EP - 363
JO - Journal of Real Estate Finance and Economics
JF - Journal of Real Estate Finance and Economics
SN - 0895-5638
IS - 3
ER -