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Editor's Choice Who Facilitated Misreporting in Securitized Loans?

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  • John M. Griffin
  • Gonzalo Maturana

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. Received August 24, 2015; accepted September 11, 2015 by Editor Matthew Spiegel.

Suggested Citation

  • John M. Griffin & Gonzalo Maturana, 2016. "Editor's Choice Who Facilitated Misreporting in Securitized Loans?," The Review of Financial Studies, Society for Financial Studies, vol. 29(2), pages 384-419.
    • Handle: RePEc:oup:rfinst:v:29:y:2016:i:2:p:384-419.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhv130
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