IS THERE A ROLE FOR GOVERNMENT SPONSORED ENTITIES WITHIN THE ORIGINATE-TO-DISTRIBUTE MODEL? EVIDENCE FROM PRIME AND SUBPRIME MORTGAGES

This paper examines a role for Government Sponsored Entity’s (GSE) within theoriginate-to-distribute model (OTD). The research determines if originated residential prime and subprime mortgages in the OTD market, have a positive correlation with housing foreclosures, by analyzing residential OTD rates in 2007 and comparing it to foreclosure rates in 2008 for all 51 states in the United States. This paper breaks down OTD mortgages into purchaser and loan typein order to determine a relationship between GSE OTD/government mortgage guarantees and foreclosure rates. The paper has limited scope due to data limitations; however, our results indicate that higher levels of residential mortgage OTD rates on a state-wide level, causes foreclosure rates to increase in the US between 2007 and 2008.