To securitise or to price credit default risk? / Danny McGowan, Huyen Nguyen
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Discovery
1703010825
URN
urn:nbn:de:gbv:3:2-121801
DOI
ISBN
ISSN
Autorin / Autor
Beiträger
Körperschaft
Erschienen
Halle (Saale), Germany : Halle Institute for Economic Research (IWH) - Member of the Leibniz Association, [01. Juli 2020]
Umfang
1 Online-Ressource (III, 103 Seiten, 3,72 MB) : Diagramme
Ausgabevermerk
Sprache
eng
Anmerkungen
Datei wurde von der herausgebenden Institution entfernt
Inhaltliche Zusammenfassung
We evaluate lenders' incentives to mitigate credit default risk through pricing or securitisation. Exploiting exogenous variation in credit default risk created by differences in foreclosure law along US state borders, we find that lenders in the mortgage market respond to the law in heterogeneous ways. In the agency market where the GSEs mandate a common interest rate policy, foreclosure law provokes a 4.5% increase in securitisation rates but does not affect interest rates. For nonagency loans where market participants demand risk premium, foreclosure law does not incentivise lenders to transfer the risk through the use of securitisation but causes a 625 basis point increase in interest rates. The results highlight how the GSEs' common interest rate policy inhibits lenders' risk-based pricing incentives, increases the GSEs' debt holdings by $70 billion per annum, and exposes taxpayers to preventable losses in the housing market.
Schriftenreihe
IWH-Diskussionspapiere ; 2020, No. 10 (July 2020) ppn:837399270