Faculty of Business Administration
Sponsor-Underwriter Affiliation and the Performance of Non-Agency Mortgage-Backed Securities

Prof. Peng LIU
Associate Professor with Tenure
Center for Real Estate and Finance
Cornell University School of Hotel Administration


Securitization of mortgage loans involves multiple financial intermediaries. Among them, loan originators, deal sponsors, and security underwriters are the key economic players. Using data on non-agency mortgage-backed securities (MBS), we find that i) deals in which underwriters and sponsors are affiliated have higher delinquency rates than those in which they are unaffiliated, and ii) the poorer performance of MBS sponsor-underwriter affiliation is true both when investment banks act as sponsors and when sponsors/lenders act as underwriters. The effect is robust to controlling for security level characteristics, suggesting that the poorer performance is beyond what is observable or priced in the deal. The results are also robust to the inclusion of underwriter or sponsor fixed effect, suggesting it is the incentive effect that drives the result. In addition, the results are robust to the inclusion of the relation between sponsors and originators. These pieces of evidence is inconsistent with the information advantage associated with vertical integration and points to poorer incentives for affiliated sponsors and underwriters. While the literature documents that securitization weakens lenders’ screening incentives, our findings suggest that an important factor affecting the performance of mortgage backed securities is the moral hazard on the part of sponsors and underwriters.

Date: December 3, 2014 (Wednesday)

Time: 11:00~12:30

Venue: Faculty of Business Administration, E22-G015

A Short Biography of Prof. Liu

Prof. Peng Liu is an associate professor of real estate and finance at the Cornell University School of Hotel Administration. His research focuses on the interaction between financial innovations and real economy, with a specific interest in real estate finance and investment, securitization, commodity pricing, and market analysis and operational research in retail, airline, hospitality, and recreational industries.

Before coming to Cornell University, Prof. Liu was a Fisher Center of Real Estate and Finance Research Fellow at the University of California, Berkeley, and an instructor at U.C. Berkeley’s Haas Business School, Tsinghua University, Shanghai Jiaotong University, and Renmin University. Prior to his academic career, Liu worked for Goldman Sachs Asset Management in New York City and held the position of senior consultant at Deloitte Consulting in Beijing.

Prof. Liu is the editor of the Journal of Real Estate Portfolio Management, associate editor of the Cornell Hospitality Quarterly and the International Real Estate Review, on the board of directors for the Global Chinese Real Estate Congress and the American Real Estate Society, and an overseas reviewer for the Research Grant Council of Hong Kong. He chaired the 2014 Cornell Retail Real Estate Roundtable and has published extensively in top-tier journals, including Review of Financial Studies, Management Science, Journal of Real Estate Finance and Economics, Journal of Banking and Finance, Journal of Empirical Finance, Cornell Hospitality Quarterly, Journal of Real Estate Research, and Journal of Housing Economics.

Prof. Liu has received the William N. Kinnard Scholar Award from the American Real Estate Society, the Homer Hoyt Post-Doctoral Honoree from the Weimer School of Advanced Studies, and the Center for Hospitality Research Industry Relevance Award from Cornell University. He received a best paper award from the American Real Estate Society and the Eurasia Business and Economists and was named teacher of the year at the Haas School of Business.

Prof. Liu earned a PhD in finance and real estate and an MS in finance from the Haas School of Business at the University of California, Berkeley; an MS in economics (agriculture and resources) from the University of California, Berkeley; an MA in financial economics from the School of Economics, Peking University, China; and a BS in engineering from Tsinghua University, China.