Investors' Savvy Decoded: Mortgage Servicing Fees Reveal Hidden Credit Risks
The study looked at how mortgage servicing fees can show the quality of mortgage pools in investments. They found that these fees can predict mortgage defaults and affect different types of securities. Surprisingly, investors seemed to understand this risk well, as shown by bond yields. This suggests investors were more knowledgeable than previously believed or that issuers were more transparent about risks. This research is still important as non-prime lending is slowly coming back.