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The Effects of Securitization on Consumer Mortgage Costs

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  • Steven Todd

Abstract

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.

Suggested Citation

  • Steven Todd, 2001. "The Effects of Securitization on Consumer Mortgage Costs," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 29(1), pages 29-54.
    • Handle: RePEc:bla:reesec:v:29:y:2001:i:1:p:29-54
    DOI: 10.1111/1080-8620.00002
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    Cited by:

    1. Frank Gyamfi-Yeboah & Alan Ziobrowski, 2010. "The Integration of Mortgage and Capital Markets in Emerging Economies—Evidence from South Africa," The Journal of Real Estate Finance and Economics, Springer, vol. 41(3), pages 339-353, October.
    2. Xudong An & Yongheng Deng & Stuart Gabriel, 2009. "Value Creation through Securitization: Evidence from the CMBS Market," The Journal of Real Estate Finance and Economics, Springer, vol. 38(3), pages 302-326, April.
    3. Gordon H. Sellon, 2002. "The changing U.S. financial system : some implications for the monetary transmission mechanism," Economic Review, Federal Reserve Bank of Kansas City, vol. 87(Q I), pages 5-35.

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