A Primer on securitization by Leon T. Kendall, Michael J. Fishman

By Leon T. Kendall, Michael J. Fishman

Amassing fourteen lectures via the pioneers of securitization and via present practitioners—from Freddie Mac, Paine Webber, JP Morgan, Chrysler, McKinsey & Co, and different significant players—A Primer on Securitization introduces readers to America's most up-to-date process of elevating capital: what it truly is, the way it operates, and what distinction securitization makes. The securitization strategy bypasses monetary intermediaries that experience traditionally accumulated deposits and loaned them to these looking cash, and hyperlinks debtors on to funds and capital markets. even supposing little has been written approximately what's maybe the most very important ideas to emerge in monetary markets because the Thirties, securitization has revolutionized the way in which that the borrowing wishes of customers and companies are met. this present day, for instance, over two-thirds of all domestic loans are being securitized, in addition to huge possibilities of vehicle loans and bank card receivables, and the method keeps to extend into new fields together with artificial securities. Authoritative and useful, those lectures express how securitization was once constructed to fill a niche in monetary markets. They talk about the character and factors of the industry imperfections that made securitization a worthwhile resource of cash, and describe how securitization has associated neighborhood loan markets with overseas capital markets. Readers will achieve a wide standpoint of different parties—the borrower, the personal loan originator, the servicer, the score organization, the unique goal motor vehicle, the credits enhancer, the underwriter, and the investor—as good as a close research of the way those events relate to each other. From the inception of the secondary loan marketplace throughout the cave in of the Granite cash, readers will study not just concerning the luck but additionally in regards to the excesses and screw ups that usually accompany the improvement of any product within the genuine or monetary region.

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Default risk is more significant than in the past; no longer does rapid appreciation bail out bad credit decisions. A second challenge in regard to managing credit risks is the pressure on the housing finance system to extend credit on unwise terms. This does not apply only to housing credit; it is also the case for commercial credit, particularly small business loans. These pressures arise from a variety of sources. The mortgage market, for example, faced a great contraction as mortgage rates rose from 7 to 9 percent for thirty-year, fixed-rate loans in 1994.

15 subject : Asset-backed financing--Congresses. A Primer on Securitization edited by Leon T. Kendall and Michael J. Fishman The MIT Press Cambridge, Massachusetts London, England Third printing, 1998 © 1996 Massachusetts Institute of Technology All rights reserved. No part of this book may be reproduced in any form by any electronic or mechanical means (including photocopying, recording, or information storage and retrieval) without permission in writing from the publisher. This book was set in Palatino by Wellington Graphics.

Our current market capitalization of about $10 billion puts us about eightieth on the Standard and Poor's 500. Even though Freddie Mac is privately owned, we, like Fannie Mae, are a corporation chartered by the United States government. We are one of only about ten institutions with that status. Being a government-sponsored enterprise (GSE) was important to establishing a nationwide secondary market and securitizing mortgages. GSE status Page 21 enabled us to gain more rapid investor acceptance and to avoid many of the regulatory impediments that other issuers would have faced.

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