Data on Finance Detailed by Researchers at Federal Reserve Board (Does Government-Sponsored Mortgage Securitization Mitigate or Aggravate Financial Crises?): Business – Finance

2026 AUG 07 (NewsRx) -- By a News Reporter-Staff News Editor at Daily Real Estate News -- Fresh data on finance are presented in a new report. According to news reporting from Washington, District of Columbia, by NewsRx journalists, research stated, “This paper analyzes a model of the mortgage market, allowing for scenarios with and without government-sponsored mortgage securitization.”

Our news editors obtained a quote from the research from Federal Reserve Board: “Conventional wisdom says that securitization, by fostering diversification and creating a ‘safe’ asset in the form of a mortgage-backed security (MBS), will reduce risk and enhance liquidity, thereby abating financial crises. Our contribution is to examine this claim by imbedding the mortgage market with a sequential strategic game played between the securitizer and banks. In this setting, adverse selection arises from the securitizer’s first-mover advantage rather than from informational asymmetries. In the model, the securitizer chooses the MBS contract terms, including the guaranteed rate and the criterion that qualifies a mortgage for securitization. Banks respond by selecting which qualifying mortgages to exchange for the MBS. Our analysis yields a central result: within this framework, government-sponsored securitization is, somewhat counterintuitively, more likely to exacerbate the severity and frequency of financial crises.”

According to the news editors, the research concluded: “This outcome arises in particular when mortgage demand is sufficiently low that originators optimally choose not to retain any higher-risk mortgages on their balance sheets.”

For more information on this research see: Does Government-Sponsored Mortgage Securitization Mitigate or Aggravate Financial Crises?. International Journal of Financial Studies, 2026,14(7):167. (International Journal of Financial Studies - http://www.mdpi.com/journal/ijfs). The publisher for International Journal of Financial Studies is MDPI AG.

A free version of this journal article is available at https://doi.org/10.3390/ijfs14070167.

Our news journalists report that additional information may be obtained by contacting Wayne Passmore, Federal Reserve Board, Federal Reserve Board of Governors, Washington, DC 20551, United States. Additional authors for this research include Roger W. Sparks.

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