Agency Conflicts in Securitization: Evidence From Ginnie Mae Early Buyouts

This paper provides new evidence of agency conflicts in securitization by documenting adverse selection in Ginnie Mae issuers' early buyout activity. Conditioning on delinquency, we find issuers buy out less risky loans with higher interest rate spreads. We illustrate not only how information asymmetries arise during the loan servicing process but also how issuers exploit them in their early buyout decisions. Unlike prior studies examining information asymmetries introduced by the securitization process, we employ unique data on a subset of early buyout loans that directly observes the soft information collected by issuers.