Private mortgage securitization and loss given default

Real Estate Economics - Tập 50 Số 5 - Trang 1334-1359 - 2022
Eric Higgins1, Abdullah Yavaş2, Shuang Zhu1
1Department of Finance Kansas State University Manhattan Kansas USA
2School of Business, University of Wisconsin‐Madison, Madison, Wisconsin, USA

Tóm tắt

AbstractLoan performance varies by default probability and loss given default (LGD). While the relationship between securitization and default probability has been studied intensively, the effect of securitization on LGD remains unexplored. Using a unique data set containing over 40,000 mortgage liquidations, this article studies the effect of private securitization on LGD. We document that securitized loans incur higher LGD than observably similar portfolio loans. The results indicate that the effect comes mainly from the difference in loan quality between securitized and portfolio loans. Securitized opaque mortgages incur more than 18% (in relative terms) higher loan losses than observably similar portfolio loans. In addition, a difference‐in‐difference analysis provides evidence that precrisis securitization standards contributed to higher loan losses.

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Real Estate Economics

Tập 50 Số 5

1334-1359

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