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The Effects of Securitization on Consumer Mortgage Costs
Author(s) -
Todd Steven
Publication year - 2001
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/1080-8620.00002
Subject(s) - securitization , secondary mortgage market , mortgage underwriting , collateralized mortgage obligation , coupon , collateralized debt obligation , business , mortgage insurance , shared appreciation mortgage , loan to value ratio , loan , commercial mortgage backed security , monetary economics , financial system , economics , collateral , finance , casualty insurance , insurance policy
We examine the effects of securitization on two dimensions of consumer mortgage costs: coupon rates and loan origination fees. We find no evidence that securitization reduces the coupon rates on fixed‐ or adjustable‐rate mortgages. Instead, securitization appears to lower mortgage loan origination fees, resulting in substantial savings for consumers. Securitization activity includes passthrough creation and collateralized mortgage obligation (CMO) creation. We test for differences between the effects of passthrough and CMO creation on primary mortgage costs. Surprisingly, these activities appear to have indistinguishable effects on loan rates and origination fees, suggesting that a large derivatives market for mortgage loans is not creating value for consumers.