The main factors underlying the rise in mortgage defaults appear to be declines in house prices and deteriorated underwriting standards, in particular an increase in loan-to-value ratios and in the share of mortgages with little or no documentation of income. Contrary to popular perception, the...

We derive a theoretical model of how jumbo and conforming mortgage rates are determined and how the jumbo-conforming spread might arise. We show that mortgage rates reflect the cost of funding mortgages and that this cost of funding can drive a wedge between jumbo and conforming rates (the...

We analyze the structure and attributes of subprime mortgage-backed securitization deals originated between 1997 and 2007. Our data set allows us to link loan-level data for over 6.7 million subprime loans to the securitization deals into which the loans were sold. We show that the...

The prioritized cash flow rules that govern structured finance essentially guarantee that senior tranches will only default in the worst states of the world. In this paper we present empirical evidence which suggests that the impact of economic catastrophe on a structured finance instrument also...

This paper investigates the relationship between securitization activity and the extension of subprime credit. The analysis is motivated by two sets of compelling empirical facts. First, the origination of subprime mortgages exploded between the years 2003-2005. Second, the securitization of...

Much attention has been paid to the large decreases in value of non-agency residential mortgage-backed securities (RMBS) during the financial crisis. Many observers have argued that the fall in prices was partly driven by decreased liquidity and fire sales. We investigate whether capital...

We analyze the structure and attributes of subprime mortgage-backed securitization deals originated between 1997 and 2007. Our data set allows us to link loan-level data for over 6.7 million subprime loans to the securitization deals into which the loans were sold. We show that the...