NDLI: SUPPORTED BY UNIGESTION “ Mortgage Loan-Flow Networks and Financial Norms

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SUPPORTED BY UNIGESTION “ Mortgage Loan-Flow Networks and Financial Norms

Content Provider	Semantic Scholar
Author	Stanton, Richard Walden, Johan Wallace, Nancy
Copyright Year	2016
Abstract	We develop a theoretical model of a network of intermediaries, which gives rise to heterogeneous financial norms and systemic vulnerabilities. The optimal behavior of each intermediary regarding its attitude toward risk, the quality of the projects that it undertakes, and the intermediaries it chooses to interact with, is influenced by the behavior of its counterparties. These strategic network effects influence the financial strength and systemic vulnerability of individual intermediaries, as well as in aggregate, beyond the direct network effects of shock propagation that have been previously studied. The behavior of a subset of intermediaries has a disproportionately large effect on the network; these nodes may be regarded as too pivotal to fail. We apply the model to the mortgage-origination and securitization network of financial intermediaries in the U.S., using a data set containing all of the more than one million private-label, fixed-rate mortgages originated and securitized in 2006 and 2007, for which we track the ex-post default performance using loan flows to define linkages. We find that default risk was closely related to network position and evolved in a predictable manner among linked nodes. This suggests that network effects are of vital importance in the U.S. mortgage market. Friday, October 28, 2016, 10:30-12:00 Room 126, Extranef building at the University of Lausanne Mortgage Loan-Flow Networks and Financial Norms∗ Richard Stanton† Johan Walden‡ Nancy Wallace§
File Format	PDF HTM / HTML
Alternate Webpage(s)	http://www.hec.unil.ch/documents/seminars/ibf/2094.pdf
Language	English
Access Restriction	Open
Content Type	Text
Resource Type	Article

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