Law Commons^™

Too Conflicted To Be Transparent: Giving Affordable Financing Its ‘Good Name’ Back, Cassandra Jones Havard

All Faculty Scholarship

Securitization, the process of pooling loans for re-sale on the secondary market, is an important part of mortgage financing. It creates more capital for mortgages and makes home pricing affordable, which is beneficial to borrowers. The subprime crisis exposed intrinsic structural flaws in the mortgage securitization process. Chief among them is the “issuer-pays” model of credit ratings. Issuers, who bundle loans for sale on the securities market, are required to have an independent analysis from a credit rating agency or a Nationally Recognized Statistical Rating Organization (NRSRO) prior to the sale of the securities to investors. This rating is not …