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

W Frame ()

No 2017-1, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

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 (search for similar items in EconPapers)
JEL-codes: G01 G21 G23 G28 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ure
Date: 2017-03-01
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Journal Article: AGENCY CONFLICTS IN RESIDENTIAL MORTGAGE SECURITIZATION: WHAT DOES THE EMPIRICAL LITERATURE TELL US? (2018) Downloads
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