Seminar 217, Risk Management: The Securitization and Solicited Refinancing Channel of Monetary Policy
Seminar: Risk Seminar | April 5 | 12:30-2 p.m. | 1011 Evans Hall
Speaker: Rupal Kamdar, UC Berkeley
I document the securitization and solicited refinancing channel, a novel transmission mechanism of monetary policy and its heterogenous regional effects. The mechanism predicts that mortgage lenders who sell their originations to Government Sponsored Enterprises or into securitizations no longer hold the loans prepayment risk, and when rates drop, these lenders are more likely to signal to their borrowers to refinance, resulting in more borrower refinancing. A regression analysis finds that in response to a decline in mortgage-backed security yields, regions where originate-to-sell-or-securitize lenders operate see more refinancing activity than regions where originate-to-hold lenders operate. The findings have important implications for (i) the efficacy of policy to increase refinancing, lower mortgage payments, and stimulate demand, (ii) the distributional consequences of monetary policy, and (iii) how the Government Sponsored Enterprises and securitization may play a key role in the pass-through to the housing market.