Working Paper
Agency Conflicts in Residential Mortgage Securitization: What Does the Empirical Literature Tell Us?
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.
Keywords: mortgages; banks; securitization; financial crisis;
JEL Classification: G01; G21; G23; G28;
Access Documents
File(s):
File format is application/pdf
https://frbatlanta.org/-/media/documents/research/publications/wp/2017/01-agency-conflicts-in-residential-mortgage-securitization-2017-03-21.pdf
Description: Full text
Authors
Bibliographic Information
Provider: Federal Reserve Bank of Atlanta
Part of Series: FRB Atlanta Working Paper
Publication Date: 2017-03-01
Number: 2017-1
Pages: 24 pages