IDEAS home Printed from https://ideas.repec.org/a/ire/issued/v21n042018p521-548.html
   My bibliography  Save this article

Mortgage Securitization, Structuring and Moral Hazard: Some Evidence and Some Lessons from the Great Crash

Author

Listed:
  • Robert Van Order

    (George Washington University)

Abstract

Securitization provides borrowers with access to capital markets, most notably as an alternative to bank lending. However, it has also used complicated structures in order to attract investors. Complicated structures can provide, and have provided, vehicles for hiding risk and inducing moral hazard, which were at the center of the Great Crash. This paper provides descriptions of structures and increasing complexity over time. It suggests where moral hazard would have been expected to show up, empirically, and provides some evidence of moral hazard based on the timing of the changes in the structures.

Suggested Citation

  • Robert Van Order, 2018. "Mortgage Securitization, Structuring and Moral Hazard: Some Evidence and Some Lessons from the Great Crash," International Real Estate Review, Global Social Science Institute, vol. 21(4), pages 521-547.
    • Handle: RePEc:ire:issued:v:21:n:04:2018:p:521-548
    as

    Download full text from publisher

    File URL: https://www.gssinst.org/irer/wp-content/uploads/2020/10/v21n4-mortgage-securitization-structuring-and-moral-hazard.pdf
    File Function: Full text
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Gary Gorton, 2009. "Information, Liquidity, and the (Ongoing) Panic of 2007," American Economic Review, American Economic Association, vol. 99(2), pages 567-572, May.
    2. Bubb, Ryan & Kaufman, Alex, 2014. "Securitization and moral hazard: Evidence from credit score cutoff rules," Journal of Monetary Economics, Elsevier, vol. 63(C), pages 1-18.
    3. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
    4. W. Scott Frame & Andreas Fuster & Joseph Tracy & James Vickery, 2015. "The Rescue of Fannie Mae and Freddie Mac," Journal of Economic Perspectives, American Economic Association, vol. 29(2), pages 25-52, Spring.
    5. Atif Mian & Amir Sufi, 2009. "The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(4), pages 1449-1496.
    6. Amiyatosh Purnanandam, 2011. "Originate-to-distribute Model and the Subprime Mortgage Crisis," The Review of Financial Studies, Society for Financial Studies, vol. 24(6), pages 1881-1915.
    7. Benjamin J. Keys & Tanmoy Mukherjee & Amit Seru & Vikrant Vig, 2010. "Did Securitization Lead to Lax Screening? Evidence from Subprime Loans," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 125(1), pages 307-362.
    8. Ashcraft, Adam B. & Schuermann, Til, 2008. "Understanding the Securitization of Subprime Mortgage Credit," Foundations and Trends(R) in Finance, now publishers, vol. 2(3), pages 191-309, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Matthew J. Botsch, 2022. "Public and Private Benefits of Information in Markets for Securitized Assets," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 48(3), pages 319-365, June.
    2. Zagonov, Maxim, 2011. "Securitization and bank intermediation function," MPRA Paper 34961, University Library of Munich, Germany, revised Sep 2011.
    3. Ahn, Jung-Hyun & Breton, Régis, 2014. "Securitization, competition and monitoring," Journal of Banking & Finance, Elsevier, vol. 40(C), pages 195-210.
    4. Tobias Berg & Daniel Streitz & Michael Wedow, 2015. "Real Effects of Securitization," BAFFI CAREFIN Working Papers 1514, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    5. Pu Liu & Yingying Shao, 2013. "Small business loan securitization and interstate risk sharing," Small Business Economics, Springer, vol. 41(2), pages 449-460, August.
    6. Figueroa, Nicolás & Leukhina, Oksana & Ramírez, Carlos, 2021. "Imperfect information transmission from banks to investors: Macroeconomic implications," Journal of Monetary Economics, Elsevier, vol. 118(C), pages 87-98.
    7. Shi, Lan & Zhang, Yan, 2018. "The effect of mortgage broker licensing under the originate-to-distribute model: Evidence from the U.S. mortgage market," Journal of Financial Intermediation, Elsevier, vol. 35(PA), pages 70-85.
    8. Patir, Assaf, 2017. "Securitization, bank vigilance, leverage and sudden stops," MPRA Paper 81463, University Library of Munich, Germany.
    9. van der Plaat, Mark & Spierdijk, Laura, 2020. "Recourse, asymmetric information, and credit risk over the business cycle," MPRA Paper 104718, University Library of Munich, Germany.
    10. Lewellen, Stefan & Williams, Emily, 2021. "Did technology contribute to the housing boom? Evidence from MERS," Journal of Financial Economics, Elsevier, vol. 141(3), pages 1244-1261.
    11. Calem, Paul & Henderson, Christopher & Liles, Jonathan, 2011. ""Cherry picking" in subprime mortgage securitizations: Which subprime mortgage loans were sold by depository institutions prior to the crisis of 2007?," Journal of Housing Economics, Elsevier, vol. 20(2), pages 120-140, June.
    12. Nam, Tong-yob & Oh, Seungjoon, 2021. "Non-recourse mortgage law and housing speculation," Journal of Banking & Finance, Elsevier, vol. 133(C).
    13. Christopher Mayer & Edward Morrison & Tomasz Piskorski & Arpit Gupta, 2014. "Mortgage Modification and Strategic Behavior: Evidence from a Legal Settlement with Countrywide," American Economic Review, American Economic Association, vol. 104(9), pages 2830-2857, September.
    14. Vladimir Asriyan & Victoria Vanasco, 2019. "Security Design in Non-Exclusive Markets with Asymmetric Information," Working Papers 1164, Barcelona School of Economics.
    15. Ryan Bubb & Alex Kaufman, 2011. "Securitization and moral hazard: evidence from credit score cutoff rules," Public Policy Discussion Paper 11-6, Federal Reserve Bank of Boston.
    16. Piero Gottardi & Vincent Maurin & Cyril Monnet, 2023. "Fragility of Secured Credit Chains," Diskussionsschriften dp2304, Universitaet Bern, Departement Volkswirtschaft.
    17. Adelino, Manuel & Scott Frame, W. & Gerardi, Kristopher, 2017. "The effect of large investors on asset quality: Evidence from subprime mortgage securities," Journal of Monetary Economics, Elsevier, vol. 87(C), pages 34-51.
    18. Agarwal, Sumit & Chang, Yan & Yavas, Abdullah, 2012. "Adverse selection in mortgage securitization," Journal of Financial Economics, Elsevier, vol. 105(3), pages 640-660.
    19. Greg Buchak & Gregor Matvos & Tomasz Piskorski & Amit Seru, 2024. "Beyond the Balance Sheet Model of Banking: Implications for Bank Regulation and Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 132(2), pages 616-693.
    20. van der Plaat, Mark, 2020. "Loan sales and the tyranny of tistance in U.S. residential mortgage lending," MPRA Paper 107519, University Library of Munich, Germany, revised 20 Apr 2021.

    More about this item

    Keywords

    Securitization; Subprime; Moral Hazard;
    All these keywords.

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ire:issued:v:21:n:04:2018:p:521-548. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: IRER Graduate Assistant/Webmaster (email available below). General contact details of provider: https://www.gssinst.org/gssinst/index.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.