Working Paper: CEPR ID: DP12852
Authors: Juan Ospina; Harald Uhlig
Abstract: We examine the payoff performance, up to the end of 2013, of non-agency residential mortgage-backed securities (RMBS), issued up to 2008. We have created a new and detailed data set on the universe of non-agency residential mortgage backed securities, per carefully assembling source data from Bloomberg and other sources. We compare these payoffs to their ex-ante ratings as well as other characteristics. We establish seven facts. First, the bulk of these securities was rated AAA. Second, AAA securities did ok: on average, their total cumulated losses up to 2013 are 2.3 percent. Third, the subprime AAA-rated segment did particularly well. Fourth, later vintages did worse than earlier vintages, except for subprime AAA securities. Fifth, the bulk of the losses were concentrated on a small share of all securities. Sixth, the misrating for AAA securities was modest. Seventh, controlling for a home price bust, a home price boom was good for the repayment on these securities. Together, these facts provide challenge the conventional narrative, that improper ratings of RMBS were a major factor in the financial crisis of 2008.
Keywords: mortgage-backed securities; MBS; financial crisis of 2008; credit ratings
JEL Codes: G01; G21; G23; G24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| AAA rating (G24) | RMBS performance (G21) |
| subprime AAA-rated RMBS (G21) | loss rates (G33) |
| home price boom (R31) | repayments (G51) |
| vintages of RMBS (G21) | performance (D29) |
| home price bust (R31) | repayments (G51) |
| characteristics of securities (G12) | losses (G33) |