New Research by Dongshin Kim Reveals Hidden Insights in Mortgage Markets

What really drives decisions in the mortgage market? New research by Pepperdine Graziadio finance faculty member Dr. Dongshin Kim sheds light on how lenders use inside knowledge to their advantage when managing risky home loans.

Coauthored with Dr. Arka P. Bandyopadhyay (New York University) and Dr. Patrick S. Smith (University of North Carolina at Charlotte), the study—recently accepted for publication in the Journal of Financial and Quantitative Analysis—focuses on Ginnie Mae issuers and their choices to “buy out” delinquent mortgages early.

The team discovered a clear pattern: when interest rate spreads rise by just one percentage point, the chance of an early buyout jumps 7 to 9 percentage points. Why? Because higher-spread loans give issuers bigger payoffs if borrowers get back on track. The study also shows that lenders collect private information about borrowers during the servicing process, information meant for investors, but then leverage it to guide their buyout decisions.

By uncovering this dynamic, the research highlights how hidden information shapes mortgage markets in ways that ultimately affect investors, lenders, and homeowners.

Read the full article here.