Securitization and moral hazard: Evidence from credit score cutoff rules

Ryan Bubb and Alex Kaufman

Journal of Monetary Economics, 2014, vol. 63, issue C, 1-18

Abstract: A growing literature exploits credit score cutoff rules as a natural experiment to estimate the moral hazard effect of securitization on lender screening. However, these cutoff rules can be traced to underwriting guidelines for originators, not for securitizers. Moreover, loan-level data reveal that lenders change their screening at credit score cutoffs in the absence of changes in the probability of securitization. Credit score cutoff rules thus cannot be used to learn about the moral hazard effect of securitization on underwriting. By showing that this evidence has been misinterpreted, our analysis should move beliefs away from the conclusion that securitization led to lax screening.

Keywords: Financial crisis; Moral hazard; Mortgages; Securitization; Credit scores (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (42)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:63:y:2014:i:c:p:1-18

DOI: 10.1016/j.jmoneco.2014.01.005

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