Formulaic Transparency: The Hidden Cost of Mass Securitization

Bhide, Amar

doi:10.2139/ssrn.2438974

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Formulaic Transparency: The Hidden Cost of Mass Securitization

Columbia University Center on Capitalism and Society Working Paper No. 79

54 Pages Posted: 23 May 2014 Last revised: 10 Sep 2016

See all articles by Amar Bhide

Amar Bhide

Tufts University - The Fletcher School of Law and Diplomacy

Date Written: September 9, 2016

Abstract

Housing finance, fair lending, and fair credit reporting rules the US induce widespread reliance on credit bureau scores by originators of residential mortgages and consumer loans. Reliance on scores that issuers cannot control -- but can disclose to investors -- has helped raise loans securitized in the US to more than five times European levels. But, because the scores exclude material information, lending mistakes also increase, skewing the distribution of credit against creditworthy borrowers.

Keywords: securitization, financial stability, financial regulation, liquidity, contracting

JEL Classification: G10, G18, G28, G38, K22, N21

Suggested Citation: Suggested Citation

Bhide, Amar, Formulaic Transparency: The Hidden Cost of Mass Securitization (September 9, 2016). Columbia University Center on Capitalism and Society Working Paper No. 79, Available at SSRN: https://ssrn.com/abstract=2438974 or http://dx.doi.org/10.2139/ssrn.2438974