Securitization: back to basis
Vink, Dennis Thibeault, André
Vink, Dennis
Thibeault, André
Citations
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Publication Type
Journal article
Editor
Supervisor
Publication Year
2010
Journal
The Financial Executive Quarterly
Book
Publication Volume
Publication Issue
March
Publication Begin page
16
Publication End page
21
Publication NUmber of pages
Collections
Abstract
The securitization of assets was first introduced to the American mortgage markets in the 1970s. The market for securities backed by these mortgages (the so-called mortgage-backed securities or MBS) was given a special impulse by the public authorities who endorsed these emissions. After the initial success of this type of transaction, the emissions were supported by an increasingly more diverse series of assets, including assets (such as revenues from leases) and bank assets (such as future payments associated with business loans). At the beginning of this century, the securitization market had become one of the most prominent fixed income sectors in the world and was, in fact, one of the fastest-moving. At the end of 2006, however, a change could be witnessed in the capital market. Like Humpty-Dumpty, securitization has taken a big fall. For the first time, it became clear that the risky subprime mortgages in the United States that served as collateral for many of these mortgage-backed securities actually represented a lower value than was previously assumed and adopted (see also Crouhy, Jarrow and Turnbull, 2008). Home owners came into financial distress as a result of rocketing variable rates and were no longer able to pay the increased interest. Many investors who had invested in these MBS saw their portfolios downgraded by the credit rating agencies, and investors booked tremendous losses that no-one had anticipated.