Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/93620
Authors: 
Mosser, Patricia C.
Tracy, Joseph
Wright, Joshua
Year of Publication: 
2013
Series/Report no.: 
Staff Report, Federal Reserve Bank of New York 644
Abstract: 
We explore the capital structure and governance of a mortgage-insuring securitization utility operating with government reinsurance for systemic or 'tail' risk. The structure we propose for the replacement of the GSEs focuses on aligning incentives for appropriate pricing and transfer of mortgage risks across the private sector and between the private sector and the government. We present the justification and mechanics of a vintage-based capital structure, and assess the components of the mortgage guarantee fee, whose size we find is most sensitive to the required capital ratio and the expected return on that capital. We discuss the implications of selling off some of the utility's mortgage credit risk to the capital markets and how the informational value of such transactions may vary with the level of risk transfer. Finally, we explore how mutualization could address incentive misalignments arising out of securitization and government insurance, as well as how the governance structure for such a financial market utility could be designed.
Subjects: 
GSE
MBS
mortgage finance
cooperatives
financial market utility
JEL: 
E02
G01
G21
G28
G32
Document Type: 
Working Paper

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