The Influence of Sponsor, Servicer and Underwriter Characteristics on RMBS Performance

Abstract

This paper assesses how the performance of US residential mortgage-backed securities (RMBSs) varied depending on sponsor, servicer, and underwriter characteristics. We find that the larger and “healthier” the sponsor of the transaction, the better the performance of the securitized loans. This finding is consistent with the hypothesis that banks with a longer market perspective are less willing to risk their good reputation for a gain in short-term profits. More surprisingly, we also find that there is a negative relationship between the market share of the lead underwriter and performance. In contrast to reputational capital theory, it appears that investment banks with high market shares in the securitization business have exploited their reputational capital.

Keywords: Securitization, information asymmetries, reputation