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Misreporting of second liens in portfolio mortgages and privately securitized mortgages

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  • Abdullah Yavas
  • Shuang Zhu

Abstract

Using a unique nationwide mortgage servicing dataset, this paper investigates the underreporting of second liens in portfolio mortgages and compares underreporting in portfolio versus privately securitized mortgages. Portfolio loans have more than 40% of the second liens underreported. Low documentation securitized loans have a 47% (in relative terms) lower misreporting rate than observably similar portfolio loans. The portfolio setting allows us to provide strong evidence that misreporting happens in the early stages of intermediation by lenders. The decreased occurrence of misreporting in sold loans subjected to more rigorous screening indicates the effectiveness of MBS issuers' screening, though its overall effect remains limited. Further, we show that the lender‐MBS issuer affiliation also plays a role in misreporting.

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  • Abdullah Yavas & Shuang Zhu, 2024. "Misreporting of second liens in portfolio mortgages and privately securitized mortgages," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 52(1), pages 73-109, January.
    • Handle: RePEc:bla:reesec:v:52:y:2024:i:1:p:73-109
    DOI: 10.1111/1540-6229.12464
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