“…For reducing the effects of moral hazard, the literature suggests various propositions including instilling rights to protect return to both parties (Hart, 1988), credit rationing (Baltensperger, 1978), and iron-clad covenants (Smith and Warner, 1979). Also, in the securitization process, originators are required to retain the risky residual tranche as a 'first loss position' or as 'skin-in-the-game' incentive, so as to absorb any expected loss.…”