The effects of securitization on consumer mortgage financing costs

Abstract

Although previous studies have found that securitization reduces primary mortgage rates by 30 basis points or more, I find these benefits disappear when fixed and adjustable rate spreads are unbundled and measured separately. I find no evidence that securitization lowers primary mortgage spreads. Nor do I find evidence that tax and regulatory changes over the last 15 years have affected primary mortgage spreads. I find that securitization reduces loan origination fees, resulting in substantial savings for consumers. In 1993 alone, securitization produced consumer savings of more than $2.8 billion in loan origination fees. This is the first study to test for differences between the effects of pass through and CMO creation on primary mortgage costs. I find that these activities have indistinguishable effects on loan rates and origination fees.