What is a mortgage securitization?

Mortgage securitization represents leaving the traditional model lending models in which financial institutions from the loan retain a bill and risk of failure until the obligation reaches maturity. Instead, securitization is a process in which creditors come from mortgages and then sell them to entities capable of associating a large amount of mortgage notes in securities products to extend the credit risk between multiple parties. As the original banks have been exempt from the long -term risk of a large mortgage portfolio, they have effectively motivated to provide as many loans as possible to generate maximum fees. At the age of 90, she gained extensive popularity in the 90s of the mortgage securitization to a large extent in the United States in early 2007, when the collapse of the US housing market began to reveal. Securing to buy investors. Mortgage assets are often sold to a special special -purpose vehicle (SPV) orconfidence to ensure the investor's claim to principle and interest. The risk of failure on the base mortgage will move to investors and far from the original bank. The market of these types of securities traditionally included individuals, municipalities, business entities and other institutional investors. Loans in this type of process may include loans for residential real estate and commercial loans.

Mortgage securitization in the United States including federally sponsored Loans Fannie Mae, Freddie Mac and Ginnie Mae are generally performed by one of the three primary ways. Notes can be associated and sell as united, through securities. Alternatively, interest and main amounts of credit funds can be divided and with Old as separate currents.

Finally, there is the possibility of selling collateralized mortgage liabilities (CMO), otherwise known as tranhes that carry different levels of risk for investors. NoJester tranches are those that offer the least risk, but more modest yields. Lower tranches are characterized by greater risk, but also the potential to generate massive profits.

Practors of the practice of securitization of mortgages often often offer the fact that this process allows greater availability of housing loans and offers investors a vehicle to obtain considerable revenues. Others believe that the procedures of securitization mortgages have prevail from the beginning of housing to the end of 2007 significantly deepening the global financial crisis. Some argue that the most blame should consist of rating agencies and investment banks, which they believe to recklessly associate risk mortgages and submitted them to investors much safer than Ultise showed them.