The Journal of Real Estate Finance and Economics

, Volume 1, Issue 4, pp 331–346 | Cite as

Elements of mortgage securitization

  • Alan C. Hess
  • Clifford W. SmithJr.


In this paper we review the forms of mortgage securitization, analyze the demand for securitization, and demonstrate how securitization meets these demands by reducing intermediation costs. We argue that the increased use of securitization is a response to increased interest rate volatility and represents a contractual innovation that facilitates an efficient allocation of risk-bearing among households and intermediaries.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Benston, George and Smith, Clifford. “A Transactions Cost Approach to the Theory of Financial Intermediation.” Journal of Finance 31 (1976), 215–231.Google Scholar
  2. Brickley, James and James, Christopher. “Access to Deposit Insurance, Insolvency Rules and the Stock Returns of Financial Institutions” Journal of Financial Economics 16 (1986), 345–371.Google Scholar
  3. DeAngelo, Harry and Masulis, Ronald. “Optimal Capital Structure Under Corporate and Personal Taxation.” Journal of Financial Economics 8 (1980), 3–29.Google Scholar
  4. Deshmukh, Sudhakar D.; Greenbaum, Stuart I.; and Kanatas, George. “Interest Rate Uncertainty and the Financial Intermediary's Choice of Exposure.” Journal of Finance 38 (1983), 141–147.Google Scholar
  5. Grove, M. A. “On ‘Duration’ and the Optimal Maturity Structure of the Balance Sheet.” The Bell Journal of Economics and Management Science 5 (1974), 696–709.Google Scholar
  6. Gurel, Eitan and Pyle, David. “Bank Income Taxes and Interest Rate Risk Management: A Note.” Journal of Finance 34 (1984), 1199–1206.Google Scholar
  7. Hendershott, Patric H. and Van Order, Robert. “Pricing Mortgages: An Interpretation of the Models and Results.” Journal of Financial Services Research 1 (1987), 77–111.Google Scholar
  8. Hess, Alan C. “Variable Rate Mortgages: Confusion of Means and Ends.” Financial Analysts Journal (January/February 1984), 67–70.Google Scholar
  9. Hess, Alan C. “Could Thrifts be Profitable? Theoretical and Empirical Evidence.” Carnegie-Rochester Conference Series on Public Policy 26 (1987), 223–282.Google Scholar
  10. Ingersoll, Jonathan. “A Theoretical and Empirical Investigation of the Dual Purpose Funds: An Application of contingent-claims Analysis.” Journal of Financial Economics 3 (1976), 83–123.Google Scholar
  11. Kendrick, John. The Formation and Stocks of Total Capital. National Bureau of Economic Research, distributed by Columbia University Press, 1976.Google Scholar
  12. Mayers, David and Smith, Clifford. “On the Corporate Demand for Insurance.” Journal of Business 55(2) (1982), 281–296.Google Scholar
  13. Mayers, David and Smith, Clifford. “Corporate Insurance and the Underinvestment Problem.” Journal of Risk and Insurance 54 (1987), 45–54.Google Scholar
  14. Modigliani, Franco and Miller, Merton. “The Cost of Capital, Corporation Finance and the Theory of Investment.” American Economic Review 48 (1958), 261–297.Google Scholar
  15. Myers, Stewart. “Determinants of Corporate Borrowing,” Journal of Financial Economics 5 (1977), 147–175.Google Scholar
  16. Smith, Clifford; Smithson, Charles W.; and Wakeman, Lee Macdonald. “The Market of Interest Rate Swaps.” Unpublished manuscript, University of Rochester, (1987).Google Scholar
  17. Smith, Clifford and Stulz, Rene. “The Determinants of Firms' Hedging Policies.” Journal of Financial and Quantitative Analysis 20 (1985), 391–405.Google Scholar
  18. Smith, Clifford and Watts, Ross. “Incentive and Tax Effects of U.S. Executive Compensation Plans.” Australian Journal of Management 7 (1982), 139–157.Google Scholar

Copyright information

© Kluwer Academic Publishers 1988

Authors and Affiliations

  • Alan C. Hess
    • 1
  • Clifford W. SmithJr.
    • 2
  1. 1.Graduate School of Business AdministrationUniversity of WashingtonWashingtonUSA
  2. 2.William E. Simon Graduate School of Business AdministrationUniversity of RochesterRochesterUSA

Personalised recommendations