To Securitize or to Price Credit Risk?

Abstract Do lenders securitize or price loans in response to credit risk? Exploiting exogenous variation regional risk due foreclosure law differences along U.S. state borders, we find that mortgages are eligible for sale the government-sponsored enterprises (GSEs) rather than risk. For non-GSE-eligible with no GSE buyback provision, increase interest rates as they unable shift loan purchasers. The results inform debate surrounding GSEs’ provisions, constant rate policy, and show underpricing increases debt holdings.