Editor's Choice Who Facilitated Misreporting in Securitized Loans?

John M. Griffin and Gonzalo Maturana

The Review of Financial Studies, 2016, vol. 29, issue 2, 384-419

Abstract: This paper examines apparent fraud among securitized nonagency loans using three indicators: unreported second liens, owner occupancy misreporting, and appraisal overstatements. We find that around 48% of loans exhibited at least one indicator of misrepresentation. Surprisingly, misreporting is similar in both low and full documentation loans and is associated with a 51% higher likelihood of delinquency. Two-thirds of loans with unreported second liens had the same originator issuing both the first and second lien. Misrepresentations in MBS pools can explain substantial cross-sectional differences in future losses. Losses were predictable and initiating from apparent fraud by MBS underwriters and loan originators. Received August 24, 2015; accepted September 11, 2015 by Editor Matthew Spiegel.

Date: 2016
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The Review of Financial Studies is currently edited by Itay Goldstein

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