“The Mortage Rate Conundrum”
Coautoreado con Alejandro Justiniano y Andrea Tambalotti
Abstract: We study the interest rates of privately securitized residential mortgages during the credit and housing boom of the early 2000s. After controlling for detailed loan and borrower characteristics, we uncover a sharp and persistent drop in the spread between mortgage and Treasury rates starting in the summer of 2003. The emergence of this mortgage rate conundrum immediately followed the collapse of an unprecedented refinancing wave, and it was more pronounced in the regions where that wave had grown faster. These same areas also experienced more originations of the non-conforming mortgages that boosted private label securitization after 2003. This evidence establishes a connection between the end of the refinancing wave and the origin of the well-documented shift in mortgage credit supply that ignited the more explosive phase of the housing boom. We also show that mortgages originated after this shift are the first to show signs of deteriorating quality, as indicated by their delinquency rates.
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