Who Facilitated Misreporting in Securitized Loans?∗

This paper examines apparent misrepresentation among securitized non-agency loans using three indicators: unreported second liens, owner occupancy misreporting, and appraisal overstatements. We find that approximately 30% of loans exhibited some indication of potential misrepresentation. Misreporting is similar in both low and fulldocumentation loans and is associated with a 51% higher likelihood of delinquency. Interest rates at origination and activity around securitization thresholds indicate that originators were largely aware of second-lien misreporting and, to some extent, inflated appraisals, but not of owner occupancy misreporting. Misrepresentation at issuance also explains substantial cross-sectional differences in future MBS losses. Our evidence indicates that losses were to some extent predictable and initiated from the practices of MBS underwriters and loan originators. JEL classification: G21, G23, R30.