Securitization, House Prices, and Bank Lending Standards. (In Chinese. With English summary.) 資產證券化, 房屋價格, 與銀行貸放標準

Abstract

We develop a model in which banks raise funds through securitizing their mortgage assets and use the funds to expand credits in the mortgage market, resulting in appreciation in house prices. Houses are used as collateral in mortgage contracts. Appreciation in prices of houses affects banks` incentive to screen mortgage applications. How securitization affects banks` incentive depends upon the way banks sell their securities backed by mortgages. If banks sell a proportion of their securitized packages, an appreciation of house prices lowers losses from mortgage default, and thus decreases banks` incentives to screen. If banks retain the equity tranche and sell the debt tranche, losses from mortgage default reduce banks` profits and thus banks have more incentives to screen mortgage applicants. However, changes in house prices do not affect the banks` incentives to screen mortgage applicants. Furthermore, if credit expansion by securitization leads banks to expect house-price appreciation in the future, the higher the expected appreciation, the less the expected losses from mortgage default, and the lower the banks` screening incentives.