Finally, securitized real estate-back debt can be modeled by setting k in Equation (19) to one. In other words, securitized mortgage debt is like a lender whose sole operations are in a specific real estate market and property type. While securitized debt investors are not more or less sophisticated than bank shareholders, because of the far more direct, uniform, and transparent link between the underlying cash flows and the investor payoffs, lenders are able to hide only far smaller losses. In other words, due to the uniformity and mechanical nature of securitized debt, even small losses get discovered quickly, and over-development is stopped before it occurs.
