Credit Ratings and the Evolution of the Mortgage-Backed Securities Market

American Economic Review Papers and Proceedings, Vol. 101, pp. 131-135, 2011

11 Pages Posted: 13 Jan 2012

See all articles by Jie He

Jie He

University of Georgia - Department of Finance

Jun "QJ" Qian

Fanhai International School of Finance, Fudan University

Philip E. Strahan

Boston College - Department of Finance; National Bureau of Economic Research (NBER)

Date Written: January 1, 2011

Abstract

We compare the structure and performance of private (non-GSE) mortgage-backed securities sold by large issuers vs. those sold by small issuers over the period 2000-2006. Securities sold by large issuers have less subordination — a greater fraction of the deal receiving AAA rating — than those sold by small issuers. Prices for AAA-rated and non-AAA rated tranches sold by large issuers fell more when the market turned down than those sold by small issuers, and this difference was concentrated among tranches issued between 2004 and 2006. These results suggest that rating agencies grant favorable ratings to large issuers, especially during market booms.

Keywords: Credit ratings, mortgage-backed securities, conflict of interest, tranche, subordination

JEL Classification: G2, G1, L1

Suggested Citation

He, Jie and Qian, Jun and Strahan, Philip E., Credit Ratings and the Evolution of the Mortgage-Backed Securities Market (January 1, 2011). American Economic Review Papers and Proceedings, Vol. 101, pp. 131-135, 2011, Available at SSRN: https://ssrn.com/abstract=1984154

Jie He (Contact Author)

University of Georgia - Department of Finance ( email )

B318 Amos Hall
Terry College of Business, University of Georgia
Athens, GA 30602-6253
United States

Jun Qian

Fanhai International School of Finance, Fudan University ( email )

Shanghai
China
86-21-63895501 (Phone)
86-21-62934572 (Fax)

HOME PAGE: http://www.fisf.fudan.edu.cn/show-65-69.html

Philip E. Strahan

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States
617-552-6430 (Phone)
617-552-0431 (Fax)

HOME PAGE: http://www2.bc.edu/~strahan

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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