IDEAS home Printed from https://ideas.repec.org/a/aza/rmfi00/y2009v2i2p214-225.html
   My bibliography  Save this article

The implosion of the Alt-A mortgage-backed securities market

Author

Listed:
  • Woodward, Luke
  • Raju, Sudhakar

Abstract

While the demise of the subprime mortgage-backed securities (MBS) market has received a great deal of attention, the implosion of the Alt-A MBS market has so far received much less attention. As recently as June 2007, annual issuance of Alt-A backed securities exceeded issuance of subprime-backed securities. The outstanding amount of Alt-A securities poses a significant systemic risk that is already becoming evident. This paper identifies the underlying causes for the deterioration of Alt-A MBS pools. While the deterioration in the subprime mortgage market was caused by lending to borrowers with poor credit, the Alt-A crisis was caused by lending to borrowers with fairly good credit who assumed excessively speculative, leveraged positions in overvalued housing markets. The paper applies value-at-risk to demonstrate that Fannie Mae's capitalisation was completely inadequate given the size of its subprime and Alt-A portfolios and its underlying loss expectations. As many of the Alt-A loans are adjustable-rate mortgages that will reset in 2009 and are moreover concentrated in the most overpriced housing markets, even more delinquencies and write-offs of Alt-A securities are in the offing.

Suggested Citation

  • Woodward, Luke & Raju, Sudhakar, 2009. "The implosion of the Alt-A mortgage-backed securities market," Journal of Risk Management in Financial Institutions, Henry Stewart Publications, vol. 2(2), pages 214-225, March.
    • Handle: RePEc:aza:rmfi00:y:2009:v:2:i:2:p:214-225
    as

    Download full text from publisher

    File URL: https://hstalks.com/article/3453/download/
    Download Restriction: Requires a paid subscription for full access.
    File URL: https://hstalks.com/article/3453/
    Download Restriction: Requires a paid subscription for full access.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    Alt-A mortgages; mortgage-backed securities (MBS); collateralised mortgage obligations (CMOs); asset-backed securities (ABS); value-at-risk (VAR); subprime mortgages; structured finance;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aza:rmfi00:y:2009:v:2:i:2:p:214-225. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Henry Stewart Talks (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.