Securitization and the Fixed-Rate Mortgage - Research paper abstract and findings

Sep 4, 2026

Fixed-rate mortgages (FRMs) dominate the U.S. mortgage market and shape household risk management, monetary policy transmission, and systemic risk. This paper tests whether liquid securitization markets are a key driver of FRM supply by comparing government-backed agency mortgage-backed securities (MBS) with private nonagency MBS. Exploiting the nonagency market freeze in Q3 2007 and exogenous loan-size variation for agency access, the study finds similar performance when both segments are liquid, but a sharp post-freeze FRM market-share increase.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages50

Reading Time2 h 6 min

AccessFree to download

Abstract

Introduction

Research questions

Data and identification strategy

Securitization and the Fixed-Rate Mortgage Andreas Fuster and James Vickery 􀀃 June 22, 2012 Preliminary and incomplete: please do not circulate without permission Abstract Fixed-rate mortgages (FRMs) dominate the U.S. mortgage market, with important consequences for household risk management, monetary policy transmission, and systemic risk. In this paper we show that the availability of liquid securitization markets is a key driver of FRM supply. Our analysis compares the government-backed agency mortgage-backed securities (MBS) market to the private nonagency MBS market, exploiting the freeze in the nonagency MBS market in the third quarter of 2007 . Using exogenous variation in loan size which determines access to the agency MBS market, we 􀀌nd that when both market segments are liquid, they perform similarly in terms of supporting FRM supply. However, after the freeze of the nonagency market, access to the still-liquid agency MBS market sharply raises the market share of FRMs, by 25{30 percentage points. We highlight policy implications for ongoing reform of the [U.S. mortgage](U.S. mortgage) 􀀌nance system. JEL classi􀀌cation: G21, G18, E44 Keywords: mortgage 􀀌nance, securitization, regression discontinuity design, di􀀋erence-indi􀀋erences 􀀃 Federal Reserve Bank of New York, 33 Liberty St., New York, NY 10045; [andreas.fuster@ny.frb.org](andreas.fuster@ny.frb.org)[and](and james.vickery@ny.frb.org. We thank Caitlin Gorback for outstanding research assistance. This paper)[ james.vickery@ny.frb.org](and james.vickery@ny.frb.org. We thank Caitlin Gorback for outstanding research assistance. This paper)[. We thank Caitlin Gorback for outstanding research assistance. This paper](and james.vickery@ny.frb.org. We thank Caitlin Gorback for outstanding research assistance. This paper)[ ](and james.vickery@ny.frb.org. We thank Caitlin Gorback for outstanding research assistance. This paper)supersedes an older working paper by Vickery titled \Interest Rates and Consumer Choice in the Residential Mortgage Market." The views expressed in this paper are those of the authors and do not necessarily re􀀍ect the opinions of the Federal Reserve Bank of New York or the Federal Reserve System. How might home buying change if the federal government shuts down the housing 􀀌nance giants Fannie Mae and Freddie Mac? The 30-year 􀀌xed-rate mortgage loan, the steady favorite of American borrowers since the 1950s, could become a luxury product, housing experts on both sides of the political aisle say. New York Times, March 3, 2011 1 Introduction The U.S. residential mortgage market is dominated by prepayable 30-year 􀀌xed-rate mortgages (FRMs), a type of home loan that exists in few other countries (Campbell 2012; Green and Wachter 2005) . FRMs comprise more than 93 percent of mortgages originated since 2009 and 82 percent of the total stock of loans.1 While experts disagree about the merits of FRMs relative to alternative contract designs, it is widely agreed that the high FRM share has important consequences for household risk management (Campbell and Cocco 2003; Van Hemert 2010), monetary policy transmission (International Monetary Fund 2004; Miles 2004), and systemic risk (Khandani, Lo, and Merton 2012) . In this paper, we analyze why FRMs are so prevalent in the U.S. , and in particular, whether securitization is an important determinant of FRM supply. Even in the wake of the subprime crisis, most U.S. mortgages are securitized into mortgage-backed securities (MBS), primarily via the quasi-governmental agencies Fannie Mae and Freddie Mac (F&F) . It seems plausible that access to liquid securitization markets should improve the supply of FRMs, since these mortgages generate interest rate risk and non-diversi􀀌able prepayment risk which is di􀀎cult for mortgage originators to hedge on-balance sheet in the absence of securitization.2 There is, however, little hard evidence about the magnitude of these supply 1 These statistics ar

FAQs

What is the main question of the paper about fixed-rate mortgages?

The paper examines whether the availability of liquid securitization markets is a key determinant of FRM supply and how this relates to agency versus nonagency mortgage-backed securities.

How does the paper use the 2007 nonagency MBS freeze to identify effects?

It exploits the freeze in the nonagency MBS market in the third quarter of 2007 and uses exogenous variation in loan size that affects access to the agency MBS market.

What happens to FRM supply after the nonagency market freezes?

When the nonagency segment is frozen, access to the still-liquid agency MBS market sharply raises the FRM market share by about 25–30 percentage points.

Sep 4, 2026

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