What is a mortgage credit risk?

Mortgage Credit Risk describes the wider economic consequences of mortgage holders that cannot repay their loans. In the modern economy, this can cover a wide range of risks. The mortgage loan risk at its simplest credit risk simply concerns the risk of a particular creditor for a specific housing loan. In a more complicated sense, it can refer to the risks on the market for securities supported by mortgages. In the most extreme case, it can refer to the risks to the economy as a whole.

There is an element of risk every time the bank lends money to the house owner. The easiest rate of mortgage risk is the risk that the owner of the house cannot repay; This is usually evaluated by a combination of the debtor's income, the amount of loan and credit rating of the debtor such as the Fico score. Banks usually assess the risk in a more sophisticated sense, taking into account the state of the housing market, which will affect how much money can be obtained if the mortgage must be closed.

a direct arrangement betweenHowever, the debtor and the creditor are not the only mortgage risk. This is because of the practice of securitization. This includes banks that receive money by issuing securities secured by mortgages. These are financial products where income eventually stems from customer mortgage repayments, with an accompanying risk that customers may fail and therefore will not be there.

Usually such products include a pack of multiple mortgages into a single fund and then distribute this fund among many investors. Each investor therefore has the rights to a small part of the income from every mortgage in the pool. The theory is that this reduces the risk to investors because they have less losses from an individual default debtor.

In fact, there are two elements that can increase this form of mortgage risk. One is a factor that affects the ability to repay one mortgage such as unemployment or growing interest withAzby can be widespread, which means that many mortgage holders of the default at the same time. The second is that the way in which the mortgages are packed together

In a wider context, this may be a mortgage loan risk for the whole economy. Between 2007 and 2008, the growing level of mortgage has created financial problems for some major banks when they were forced to re -evaluate assets, including securities supported by mortgages. This revaluation caused some banks and other financial institutions to face liquidity problems. While some left the business, others were given financial assistance by national governments in order to maintain the banking system as a whole. This had the consequences for fiscal finances and was accused of deteriorating public deficits.