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Securitization and Loan Performance: Ex Ante and Ex Post Relations in the Mortgage Market

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  • Wei Jiang
  • Ashlyn Aiko Nelson
  • Edward Vytlacil

Abstract

This study examines the relation between securitization and loan performance using a comprehensive dataset from a major national mortgage lender. Loans remaining on the bank's balance sheet ex post incurred higher delinquency rates than sold loans, contrasting the negative relation between screening efforts and ex ante probability of loan sale explored by prior studies. Moreover, the performance gap between sold and retained loans was wider among the subsample of loans that were perceived as easier to resell. The investors'seeming advantage over the originating bank can mostly be explained by information revealed during the time between loan origination and sale.

Suggested Citation

  • Wei Jiang & Ashlyn Aiko Nelson & Edward Vytlacil, 2014. "Securitization and Loan Performance: Ex Ante and Ex Post Relations in the Mortgage Market," The Review of Financial Studies, Society for Financial Studies, vol. 27(2), pages 454-483.
    • Handle: RePEc:oup:rfinst:v:27:y:2014:i:2:p:454-483.
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    File URL: http://hdl.handle.net/10.1093/rfs/hht073
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