Review of Financial Studies Vol. 29 No. 2 2016
Who Facilitated Misreporting in Securitized Loans?
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.
- Volume
- 29
- Issue
- 2
- Pages
- 384-419
- Sources
- bibtex:phds-export.bib