Trustee Reputation in Securitization: When Does It Matter?
36 Pages Posted: 16 Nov 2016 Last revised: 28 Feb 2018
Date Written: September 1, 2016
We consider the role of trustees – who are nominated to protect the interests of investors – in securitization pricing and whether investors rely on them to mitigate risks. In particular, we examine the effect of trustee reputation on initial yield spreads of European mortgage-backed security (MBS) issuances between 1999 and the first half of 2007. We find that engaging reputable trustees led to lower spreads during the credit boom period prior to the 2007-2009 financial crisis. Our findings suggest that trustees’ reputation was deemed more important when information asymmetries in credit markets were larger and risk assessment became more challenging.
Keywords: securitization, MBS, trustee reputation, 2007-2009 financial crisis
JEL Classification: G21, G28
Suggested Citation: Suggested Citation