Subprime Mortgage Defaults and Credit Default Swaps
53 Pages Posted: 24 May 2010 Last revised: 8 May 2014
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Subprime Mortgage Defaults and Credit Default Swaps
Subprime Mortgage Defaults and Credit Default Swaps
Date Written: May 7, 2014
Abstract
We offer the first empirical evidence on the adverse effect of credit default swap (CDS) coverage on subprime mortgage defaults. Using a large database of privately securitized mortgages, we find that higher defaults concentrate in mortgage pools with concurrent CDS coverage and within these pools the loans originated after or shortly before the start of CDS coverage have an even higher delinquency rate. The results are robust across different zip code and origination quarter cohorts. Overall, we show that CDS coverage helped drive higher mortgage defaults during the financial crisis.
Keywords: Subprime mortgage default, Credit default swaps, Securitization
JEL Classification: G22, G30, G32, G38
Suggested Citation: Suggested Citation
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