Supersedes Working Paper 09-21/R — Securitization and Mortgage Default.

The effect of securitization is strongest for prime mortgages, which have not been studied widely in the previous literature and particular prime adjustable-rate mortgages (ARMs): These become delinquent at a 30 percent higher rate when privately securitized. By contrast, our baseline estimates for subprime mortgages show that private-securitized loans default at lower rates. We show, however, that “early defaulting loans” account for this: those that were so risky that they defaulted before they could be securitized.