1. If the loans default too soon or the ratios in the MBS bundle gets out of whack, they come back to the originator. Hence, the OwnIt implosion.
2. Many of the larger banks (BofA, Wells, etc.) keep a portion of their loans and service the loans in the MBS after securitization.
3. Perceived lack of quality in the MBS bundles will drive the required interest rate up, either through coupon rate or discounting to increase the yield to recover capital losses. The banks can’t sell “$100M” of loans and only get $90M, the shareholder don’t like the impact on the balance sheet.
