include constraints to limit the loss faced by the underwriter for an early first default. In this more complicated setting, a simple implementation using a CDS and a risk free bond persists.

We show that delinquent loans are serviced differently depending on their securitization status. Conditional on a loan becoming seriously delinquent, we find a significantly lower foreclosure rate associated with loans held by the bank (`portfolio' loans) when compared to similar loans that are...