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Federal Reserve Bank of San Francisco
FRBSF Economic Letter
Mortgage-backed securities: how important is "skin in the game"?
Christopher M. James
Abstract

Financial reform legislation passed by Congress in 2010 requires mortgage originators to retain some loss exposure on the mortgages they securitize. Recent research compares the performance of mortgage-backed securities for different types of issues in which originators retain different degrees of loss exposure. The findings suggest that retention of even modest loss exposure by originators reduces moral hazard and is associated with significantly lower loss rates on these securities.


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Christopher M. James, "Mortgage-backed securities: how important is "skin in the game"?" , Federal Reserve Bank of San Francisco, FRBSF Economic Letter, number 37, 2010.
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Keywords: Mortgage loans ; Mortgage-backed securities ; Moral hazard
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