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

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  • Christopher M. James

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.

Suggested Citation

  • Christopher M. James, 2010. "Mortgage-backed securities: how important is "skin in the game"?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue dec13.
  • Handle: RePEc:fip:fedfel:y:2010:i:dec13:n:2010-37
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    References listed on IDEAS

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