Understanding the Securitization of Subprime Mortgage Credit
In this survey we provide an overview of the subprime mortgage securitization process and the seven key informational frictions which arise. We discuss how market participants work to minimize these frictions and speculate on how this process broke down. We continue with a complete picture of the subprime borrower and the subprime loan, discussing both predatory borrowing and predatory lending. We present the key structural features of a typical subprime securitization, document how the rating agencies assign credit ratings to mortgage-backed securities, and outline how the agencies monitor the performance of mortgage pools over time. Throughout the survey, we draw upon the example of a mortgage pool securitized by New Century during 2006.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hanson, Samuel & Schuermann, Til, 2006. "Confidence intervals for probabilities of default," Journal of Banking & Finance, Elsevier, vol. 30(8), pages 2281-2301, August.
- Lando, David & Skodeberg, Torben M., 2002. "Analyzing rating transitions and rating drift with continuous observations," Journal of Banking & Finance, Elsevier, vol. 26(2-3), pages 423-444, March.
- Pamela Nickell & William Perraudin & Simone Varotto, 2001.
"Stability of ratings transitions,"
Bank of England working papers
133, Bank of England.
- Reinhart, Carmen, 2002.
"Financial crises, credit ratings, and bank failures: An introduction,"
13247, University Library of Munich, Germany.
- Doron Kliger & Oded Sarig, 2000.
"The Information Value of Bond Ratings,"
Journal of Finance,
American Finance Association, vol. 55(6), pages 2879-2902, December.
- Doron Kliger & Oded Sarig, . "The Information Value of Bond Ratings," Rodney L. White Center for Financial Research Working Papers 13-97, Wharton School Rodney L. White Center for Financial Research.
- Donald P. Morgan, 2007. "Defining and detecting predatory lending," Staff Reports 273, Federal Reserve Bank of New York.
When requesting a correction, please mention this item's handle: RePEc:now:fntfin:0500000024. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Alet Heezemans)
If references are entirely missing, you can add them using this form.