The loan level tapes, delivered by the GSEs each month, unfortunately only contain delinquency data (DQ’s) at the pool level, unlike the Ginnie Mae tape which is at the loan level. One implication of this discrepancy is that state-level DQ’s can be calculated for the Ginnie programs but not, in general, for the GSE’s. An alternative approach for tracking GSE DQ’s at the loan level is to examine the performance of the reference loans in their Credit Risk Transfer (CRT) deals.
The sample of loans contained in the CRT tapes is a significant portion of the total deliveries to the entities but are not a complete sample. For CAS, the UPB represents 25%-30% of all FNM balances, while for STACR, it represents 50% of all FHL balances.
The primary question here is whether the CRT reference loans are a representative sample of the total for delinquencies. The way to validate the assumption is to compute a national aggregate of delinquencies for the whole set of loans in the CRT pools and compare these to the DQ data contained in the GSE monthly summaries.
A new paper by Pedro Gete at IE Business School and Michael Rehrer at the University of California San Diego entitled “Mortgage Securitization and Shadow Bank Lending” identifies a channel through which prices for FHA-insured loans rise relative to those insured by the GSE’s as the result of a change in a financial regulation. This relative price hike provides an incentive for credit-constrained nonbanks to increase their lending relative to banks by expanding their activity to less credit-worthy borrowers. A key metric utilized to measure the degree of credit loosening is median credit score. Calculation of this statistic requires the availability of the kind of big data digital tools in the cloud to order the millions of loans involved that are available to Recursion Co customers.
Congratulations to them for exceptional research!
The paper will be appearing in the Journal of Financial Studies and can be found here: