Agency Conflicts in Residential Mortgage Securitization: What Does the Empirical Literature Tell Us?

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. www.econstor.eu Abstract: The agency conflicts inherent in securitization are viewed by many as having been a key contributor to the recent financial crisis, despite the presence of various legal and economic constructs to mitigate them. A review of recent empirical research for the U.S. home mortgage market suggests that securitization itself may not have been a problem, but rather the origination and distribution of observably riskier loans. Low-documentation mortgages, for which asymmetric information problems are acute, performed especially poorly during the crisis. Securitized low-documentation mortgages performed better when included in deals where security issuers were affiliated with lenders or had significant reputational capital at stake and investors priced the risk of low-documentation loans via larger required equity tranches and/or higher security yields. Terms of use: Documents inJEL classification: G01, G21, G23, G28

Securitization, bank behaviour and financial stability: A systematic review of the recent empirical literature

“…Retention of the riskier tranches can also be interpreted as a signal of asset quality. See Frame (2018) for a discussion of these issues. 3 With respect to asset classes, the Chinese market is dominated by CLOs -corporate loans/assets -which comprised 55% of issuance volumes in 2017.…”

Misreporting of second liens in portfolio mortgages and privately securitized mortgages

“…The results show that 7 Although there is no direct evidence that screening was more prevalent for LowDoc loans, there has been some indirect evidence in the literature. Frame (2018), for instance, argues that LowDoc mortgages have more asymmetric information problems, securitization exacerbates the asymmetric information for LowDoc loans, and investors price the risk of Low-Doc loans via larger required equity tranches and/or higher security yields. Similarly, Ambrose et al (2016a) find that LowDoc loans to borrowers who could have verified their income (i.e., not self-employed W-2 earners) performed especially poorly, and such selection was observable by the lender but would not have been to outside investors.…”