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- Title
Does Securitization Weaken Screening Incentives?
- Authors
Choi, Dong Beom; Kim, Jung-Eun
- Abstract
We test whether lenders' screening incentives weaken when faced with the possibility of loan sales. We adopt a new measure of lending standards, the processing time for mortgage applications at the loan level, and use the collapse of the nonagency mortgage-backed securities issuance market as a natural experiment. Secondary market liquidity for nonconforming loans decreased significantly at the end of 2007, but the market for securitizing conforming loans did not experience the same breakdown. Following this event, lenders spent significantly more time screening applications for loans larger than the conforming loan limits than for those below the limits. The processing-time gap widened more for banks with lower capital, greater involvement in the originate-to-distribute model, and larger assets.
- Subjects
ASSET backed financing; LOAN review; CREDIT ratings; LOAN sales; MORTGAGE-backed securities; SECONDARY market financing; LIQUIDITY (Economics); NONCONFORMING loans
- Publication
Journal of Financial & Quantitative Analysis, 2021, Vol 56, Issue 8, p2934
- ISSN
0022-1090
- Publication type
Article
- DOI
10.1017/S0022109020000873