Abstract

In 2006, the US Securities and Exchange Commission adopted Regulation AB (Reg AB) that mandates the disclosure of originators with 20 % or more of the pool assets in mortgage backed securities. Using data on non-agency mortgage backed securities (MBS), we uncover a discrete jump in the fraction of mortgage deals consisting of origi-nation stakes just below the disclosure threshold (low stake) after Reg AB. These deals have significantly larger losses than those without low stake when issued after Reg AB. Further, our analysis on loan level data provides evidence that securitized loans show higher delinquency when their originators increase the use of low origination stakes after Reg AB. Our findings suggest that mortgage securitizers attempt to circumvent the disclosure requirement under Reg AB when riskier loans are securitized.