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Mortgage-backed securities: how important is "skin in the game"?

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  • Christopher M. James
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    Abstract

    Financial reform legislation passed by Congress in 2010 requires mortgage originators to retain some loss exposure on the mortgages they securitize. Recent research compares the performance of mortgage-backed securities for different types of issues in which originators retain different degrees of loss exposure. The findings suggest that retention of even modest loss exposure by originators reduces moral hazard and is associated with significantly lower loss rates on these securities.

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    File URL: http://www.frbsf.org/publications/economics/letter/2010/el2010-37.html
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    File URL: http://www.frbsf.org/publications/economics/letter/2010/el2010-37.pdf
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    Bibliographic Info

    Article provided by Federal Reserve Bank of San Francisco in its journal FRBSF Economic Letter.

    Volume (Year): (2010)
    Issue (Month): dec13 ()
    Pages:

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    Handle: RePEc:fip:fedfel:y:2010:i:dec13:n:2010-37

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    Related research

    Keywords: Mortgage loans ; Mortgage-backed securities ; Moral hazard;

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    1. 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, MIT Press, vol. 125(1), pages 307-362, February.
    2. Atif Mian & Amir Sufi, 2009. "The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis," The Quarterly Journal of Economics, MIT Press, vol. 124(4), pages 1449-1496, November.
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