Friction between the asset manager and the investor: Adverse selection problem. This problem can be mitigated by the asset manager charging due diligence fees to the investor.

Friction between the arranger and the originator: Model error problem. This problem can be mitigated by the arranger providing a credit enhancement to the securitized products with its own funding.

Friction between the investor and credit rating agencies: Principal-agent conflict. This problem can be mitigated by requiring credit rating agencies to be paid by originators and not by investors for their rating services.

Friction between the servicer and the mortgagor: Moral hazard problem. This problem can be mitigated by requiring the mortgagor to escrow funds for insurance and tax payments.