What drives screening incentives in nonbank mortgage originators?

Ganduri, Rohan

doi:10.1111/1540-6229.12456

Cited by 2 publications

(1 citation statement)

References 33 publications

(99 reference statements)

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“…The Bankruptcy Abuse and Consumer Protection Act (BACPA) in 2005 made it easier for warehouse creditors to seize their collateral and thereby increased banks' interest in extending these lines. The BACPA changes also reduced nonbank costs and contributed to rapid nonbank growth both pre-2008 (e.g., Ganduri 2021, Lewis 2021) and post-GFC (see Kim et al 2018, Metrick & Tarullo 2021.…”

Section: Why Has Nonbank Market Share Increased Since the Global Fina...mentioning

confidence: 99%

Nonbanks and Mortgage Securitization

Kim

Pence

Stanton

et al. 2022

Annu. Rev. Financ. Econ.

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This article reviews the dramatic growth of nonbank mortgage lending after the Global Financial Crisis, especially to borrowers with lower credit scores, and the related importance of mortgage-backed securitization. Our literature review suggests that the existing theoretical and empirical work on securitization is more relevant to bank than to nonbank lenders, thus leaving outstanding questions as to why nonbank market shares have increased to their current levels and how best to structure nonbank oversight. To highlight key differences in the mortgage-lending incentives of banks and nonbanks, we build a simple theoretical model of bank versus nonbank mortgage lending and use it to generate and test empirical hypotheses. We find, in particular, that loans issued by nonbanks are more likely to prepay early than loans issued by banks, the difference not explainable by nonbank borrowers prepaying more rationally. Using regulatory filings from nonbanks that are typically unavailable to academic researchers, we examine the balance sheets and liquidity and capital positions of large Ginnie Mae nonbank servicers, which face and pose more risk in the current mortgage system. We find that on average these servicers have reasonable liquidity and capital positions relative to standard regulatory thresholds, particularly in 2022:Q1 after a few quarters of elevated profits. However, some large Ginnie Mae servicers appear to have inadequate capital, as gauged by risk-based capital measures. If defaults rise on a large scale, the liquidity and capital positions of these servicers may amplify the disruption in the mortgage and housing markets. Expected final online publication date for the Annual Review of Financial Economics, Volume 13 is November 2022. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.

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Section: Why Has Nonbank Market Share Increased Since the Global Fina...mentioning

confidence: 99%