Who Facilitated Misreporting in Securitized Loans?
John M. Griffin
University of Texas at Austin - Department of Finance
Emory University - Goizueta Business School
This paper examines apparent fraud among securitized non-agency 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.
Number of Pages in PDF File: 55
Keywords: delinquency, misreporting, mortgage, mortgage-backed security, second lien
JEL Classification: G21, G23, R30
Date posted: April 26, 2013 ; Last revised: January 16, 2016