Working Paper: Mortgage-Backed Securities and the Financial Crisis of 2008: a Post Mortem (with Harald Uhlig)

Our work: Paper    On-line Appendix       Slides       Data and Code

Project Description: In this project we collect cash flow data on more than 140 thousand non-agency Mortgage Backed Securities issued between 1987 and 2013. We analyze their losses and returns and how they relate to the credit ratings they were originally assigned and to the market segment they belong (Subprime, Prime, and Alt-A)

Abstract:  We examine the payoff performance, up to the end of 2013, of non-agency residential mortgage-backed securities (RMBS), issued up to 2008. For our analysis, 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 five 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 under six percent. Third, the subprime AAA-rated RMBS did particularly well. Forth, the bulk of the losses were concentrated on a small share of all securities. Fifth, later vintages did worse than earlier vintages. Together, these facts call into question the conventional narrative, that improper ratings of RMBS were a major factor in the financial crisis of 2008.

Presentations: NBER Summer Institute Capital Markets and the Economy (July 20, 2016), Chicago Booth Finance Brown Bag (Nov. 12 2015)