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Essays on the U.S. Mortgage Market.

Record Type:	Electronic resources : Monograph/item
Title/Author:	Essays on the U.S. Mortgage Market./
Author:	Zheng, Chen.
Published:	Ann Arbor : ProQuest Dissertations & Theses, : 2021,
Description:	174 p.
Notes:	Source: Dissertations Abstracts International, Volume: 83-01, Section: A.
Contained By:	Dissertations Abstracts International83-01A.
Subject:	Finance. -
Online resource:	http://pqdd.sinica.edu.tw/twdaoapp/servlet/advanced?query=28546954
ISBN:	9798516932502

Essays on the U.S. Mortgage Market.
Zheng, Chen.

Essays on the U.S. Mortgage Market. - Ann Arbor : ProQuest Dissertations & Theses, 2021 - 174 p.

Source: Dissertations Abstracts International, Volume: 83-01, Section: A.

Thesis (Ph.D.)--The University of Wisconsin - Madison, 2021.

This item must not be sold to any third party vendors.

This dissertation studies different aspects of the U.S. mortgage market, an important sector of the entire economy. The first chapter focus on the refinance market for residential mortgage, while the second and third chapter explores the previously overlooked non-agency mortgage servicing industry.The first chapter (joint with Xiaoye Tian) studies the unintended consequences arising from program design, and how it augments the market power of incumbent lenders, in the context of a federal program called Home Affordable Refinance Program. We build a dynamic discrete choice model of refinance decision where the payoff is generated from a search and negotiation process. We estimate the model using data on program participation and pricing decision. The estimation exploits a significant change to the program design that gives exogenous variation in the competitive advantage of incumbent lenders under the program. In a counterfactual where the advantage granted by program design is shut down, we find that it leads to an average welfare improvement of $4,977. The insight from this study could apply to other policies whose implementation depends on intermediaries with incumbency advantage with respect to targeted agents.The second chapter (joint with Moussa Diop) explores incentive issues associated with the servicer compensation structure in non-agency securitizations. First, we document key stylized facts on servicing fees. We show that they decrease with loan quality, loan amount, and loan maturity; suggest economies of scale in servicing; increase with the intensity of default in outstanding deals; and are lower on issuer-serviced loans. As a key contribution of this study, we show that servicing fees play a significant role in mortgage modification and foreclosure as servicers protect their cash flows, possibly to the detriment of security investors, by keeping alive loans paying high fees. As the government retrenches from housing finance, leaving room for private lending and securitization, this incentive problem in servicing will become a pressing issue for regulators to address.In the third chapter (joint with Moussa Diop), we examine the informativeness of servicing fees about the quality of non-agency mortgage collateral pools and, ultimately, the value of the mortgage-backed securities. We find that servicing fees capture unobservable credit risk that explains mortgage default and differentially affects the performance of various security classes. However, security yields at issuance appropriately reflect for this risk, which suggests that investors were more sophisticated than previously thought or that deal issuers were more transparent about collateral credit risk than recognized in the literature. The slow reemergence of non-prime lending as non-qualified mortgages makes the findings of this study still relevant.

ISBN: 9798516932502Subjects--Topical Terms:

542899
Finance.
Subjects--Index Terms:

Household finance

Essays on the U.S. Mortgage Market.
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300 $a 174 p.
500 $a Source: Dissertations Abstracts International, Volume: 83-01, Section: A.
500 $a Advisor: Houde, Jean-Francois.
502 $a Thesis (Ph.D.)--The University of Wisconsin - Madison, 2021.
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520 $a This dissertation studies different aspects of the U.S. mortgage market, an important sector of the entire economy. The first chapter focus on the refinance market for residential mortgage, while the second and third chapter explores the previously overlooked non-agency mortgage servicing industry.The first chapter (joint with Xiaoye Tian) studies the unintended consequences arising from program design, and how it augments the market power of incumbent lenders, in the context of a federal program called Home Affordable Refinance Program. We build a dynamic discrete choice model of refinance decision where the payoff is generated from a search and negotiation process. We estimate the model using data on program participation and pricing decision. The estimation exploits a significant change to the program design that gives exogenous variation in the competitive advantage of incumbent lenders under the program. In a counterfactual where the advantage granted by program design is shut down, we find that it leads to an average welfare improvement of $4,977. The insight from this study could apply to other policies whose implementation depends on intermediaries with incumbency advantage with respect to targeted agents.The second chapter (joint with Moussa Diop) explores incentive issues associated with the servicer compensation structure in non-agency securitizations. First, we document key stylized facts on servicing fees. We show that they decrease with loan quality, loan amount, and loan maturity; suggest economies of scale in servicing; increase with the intensity of default in outstanding deals; and are lower on issuer-serviced loans. As a key contribution of this study, we show that servicing fees play a significant role in mortgage modification and foreclosure as servicers protect their cash flows, possibly to the detriment of security investors, by keeping alive loans paying high fees. As the government retrenches from housing finance, leaving room for private lending and securitization, this incentive problem in servicing will become a pressing issue for regulators to address.In the third chapter (joint with Moussa Diop), we examine the informativeness of servicing fees about the quality of non-agency mortgage collateral pools and, ultimately, the value of the mortgage-backed securities. We find that servicing fees capture unobservable credit risk that explains mortgage default and differentially affects the performance of various security classes. However, security yields at issuance appropriately reflect for this risk, which suggests that investors were more sophisticated than previously thought or that deal issuers were more transparent about collateral credit risk than recognized in the literature. The slow reemergence of non-prime lending as non-qualified mortgages makes the findings of this study still relevant.
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653 $a Household finance
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653 $a Real estate
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710 2 $a The University of Wisconsin - Madison. $b Economics. $3 2094978
773 0 $t Dissertations Abstracts International $g 83-01A.
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792 $a 2021
793 $a English
856 4 0 $u http://pqdd.sinica.edu.tw/twdaoapp/servlet/advanced?query=28546954