Real Estate Credit and Securitization
Friday, Jan. 3, 2020 10:15 AM - 12:15 PM (PDT)
- Chair: Ricardo Correa, Federal Reserve Board
The Geography of Mortgage Lending in Times of FinTech
AbstractWe analyze how banks’ inter-regional mortgage allocations change when an online platform enables them to offer to regions where they have no branches. Unique data on responses from different banks to each mortgage application yield three novel findings. First, banks offer more and cheaper credit to borrowers in previously more concentrated markets, identified with quasi-experimental overseas bank losses. Second, banks prefer lending to regions where collateral prices are less correlated with those at home, identified with linguistic differences, or where current prices seem less over-heated. Third, over time offers become more automated, lowering operational costs.
Digging into the Black Box of Portfolio Replenishment in Securitization: Evidence from the ABS Loan-Level Initiative
AbstractWith the introduction of simple, transparent, and standardized(STS) securitizations in Europe in 2019, loans which are transferred to the special-purpose entity after the closing of the transaction, i. e. ex post, shall meet the eligibility criteria applied to the initial underlying exposures. We analyze an extensive data set on 95 ABS backed by more than 1.6 million SME loans in the period from 2013 until 2017 from the central repository under the ECB loan-level initiative. Our study reveals that loans added to ABS portfolios ex post perform worse than loans being part of the initial ABS portfolio since originators choose low-quality loans to include in ABS portfolios after the closing. As loans added to the ABS portfolio ex post also show lower performance compared to similar loans removed from the portfolio prior to ABS maturity, average loan performance in the portfolio declines. Turning to the bank perspective, we find that originators being undercapitalized or exhibiting high NPL ratios make particularly use of portfolio replenishment. The opposite holds if originators specify loan eligibility criteria in their ABS prospectuses.
Capital Flows, Real Estate, and Local Cycles: Evidence from German Cities, Banks, and Firms
AbstractWe study the role of real estate markets in the transmission of bank-flow shocks to output in Germany. Identification exploits a policy assigning refugees to municipalities on a quasi-random basis and exogenous variation in the non-developable area. We estimate that, during the 2009-2014 period, for every 100-basis-point increase in the PIGS spread, which captures well German cross-border bank flows, cities most exposed to refugees and non-developable area grow 15-25 basis points more than the least exposed ones. Spread increases shift credit to firms with more real estate collateral. More collateral leads firms to hire and invest more, without evidence of misallocation.
- G1 - General Financial Markets
- L1 - Market Structure, Firm Strategy, and Market Performance