The Development of Mortgage-Backed Securities Market and the Role of Regulation

Juan Diego Ramirez Larrea

Master's thesis

Abstract:

This thesis attempts to describe the MBS market in the perspective of the main factors that have been attributed to cause the financial crisis of 2008 as well as analysed the development of it following this crisis. This includes to identify whether there is a relationship between the regulatory environment and the issuances of MBSs. I have relied heavily on past literature on the financial crisis in order to pinpoint the main factors of interest for our analysis. Referencing the literature review, I have identified these factors to be: Macroeconomic environment, corporate governance and incentives, as well as the overall oversight present in the market. I have used these factors as well as respective quantitative factors to measure their impact on the issuance of mortgage related structured finance products, as to draw a relationship between the two. I have further focused on drawing a distinction between the relationship of this factors to agency and non-agency structured finance issuance as to further describe the MBS market. I have employed mainly regression analysis to identify and quantify these relationships and to draw conclusion of the issuance’s sensitivity to these factors. By applying these regressions, I have concluded that the MBS market as a whole does not meet the hypotheses stated and instead behaves on the opposite direction. However, through separating the MBS market into agency and non-agency issuances, I have been able to identify that the private-label issuances numbers behave as hypothesized in relation to the factors of interest.

Abstract:

This thesis attempts to describe the MBS market in the perspective of the main factors that have been attributed to cause the financial crisis of 2008 as well as analysed the development of it following this crisis. This includes to identify whether there is a relationship between the regulatory environment and the issuances of MBSs. I have relied heavily on past literature on the financial crisis in order to pinpoint the main factors of interest for our analysis. Referencing the literature review, I have identified these factors to be: Macroeconomic environment, corporate governance and incentives, as well as the overall oversight present in the market. I have used these factors as well as respective quantitative factors to measure their impact on the issuance of mortgage related structured finance products, as to draw a relationship between the two. I have further focused on drawing a distinction between the relationship of this factors to agency and non-agency structured finance issuance as to further describe the MBS market. I have employed mainly regression analysis to identify and quantify these relationships and to draw conclusion of the issuance’s sensitivity to these factors. By applying these regressions, I have concluded that the MBS market as a whole does not meet the hypotheses stated and instead behaves on the opposite direction. However, through separating the MBS market into agency and non-agency issuances, I have been able to identify that the private-label issuances numbers behave as hypothesized in relation to the factors of interest.

Keywords

Mortgage-Backed Securities, Securitization, Collateralized Debt Obligations, Regulation, Collateralized Mortgage Obligations

Keywords

Securitization, Mortgage-Backed Securities, Asset-Backed Securities, Collateralized Mortgage Obligations, Regulation, Credit Derivatives

Language used: English

Date on which the thesis was submitted / produced: 14. 5. 2022

Thesis defence

• Date of defence: 30. 5. 2022
• Supervisor: Jiří Witzany
• Reader: Petr Teplý

Vysoká škola ekonomická v Praze

Master programme:
Finance and Accounting