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21 Transnat'l L. & Contemp. Probs. 395 (2012-2013)
Evolutionary Developments in Mortgage Securitization: Financial Law Reforms, Putative Beneficiaries, and Archetypal Economic Risks

handle is hein.journals/tlcp21 and id is 403 raw text is: EVOLUTIONARY DEVELOPMENTS IN MORTGAGE SECURITIZATION: FINANCIAL LAW REFORMS, PUTATIVE BENEFICIARIES, AND ARCHETYPAL ECONOMIC RISKS Yuliya Guseva* I. INTRODUCTION ...................................... ..... 396 II. PUTATIVE VALUE OF SECURITIZATION ........................ 402 A. A Structural Overview: Transactional Basics, Complexity, and Legal Risks ....................... ............ 402 B. Three Strata of Beneficiaries. ................ ....... 407 1. Lenders and Securitizers .................... ...... 407 2. Investors .................................. ..... 409 3. Mortgagors..................................... 414 4. Market Losses . .............................. ..... 415 III. TRANSPLANTATION AND DEVELOPMENT OF MBS MODELS: COVERED BONDS AND SECURITIZATION ....................... 417 A. A Cross-Border History of Mortgage-Related Securities ........ 417 B. Current Models and Their Similarities....... ................ 419 C. The Pros and Cons of the Major Models ......... .......... 421 IV. EVOLUTION OF SECURITIZATION ................................. 424 A. First Period of Securitization ................. ...... 424 B. Second Period of Securitization ..................... 427 1. Socioeconomic Demand for Securitization...... ....... 427 2. Securitization Reforms ................... .......... 429 3. Pre-recession Years: Government Programs and Transplantation to Other Jurisdictions ..................... 435 V. AGENCY AND HIDDEN INFORMATION PROBLEMS IN THE LEMONS MARKET ........................... ......... 441 A. Investors as the Intended Beneficiaries ........... ..... 441 1. Market Failures ........................... ...... 441 2. Market Transparency and Disclosure ................ 446 3. Information Processing in Securitization ....... ...... 447 4. Regulatory Reforms ................................... 451 B. Lenders and Securitizers ..................... ..... 461 1. Market Losses and the Misaligned Incentives Problem.... 461 2. Risk Retention Policies ................... ......... 466 C. Mortgagors ............................... ..... 469 Visiting Assistant Professor, Fordham University School of Law, LL.M., Columbia Law School, S.J.D., Central European University. I am grateful to Professor Victor Goldberg for his helpful comments on the earlier drafts of this article. I am also indebted to Professors Merritt Fox and Lawrence Glosten for their comments and criticism of the underpinnings of this article and our many conversations about this research project and securitization. My gratitude goes to Lee C. Buchheit, Esq., for his insightful remarks and ideas on the history of regulatory cycles. I would like to thank participants in the Kauffman Foundation Fellows Workshop for their comments and suggestions.