Investors Beware: Flaws in the Residential Mortgage Securitization Process

CFA Digest ◽  
2011 ◽  
Vol 41 (1) ◽  
pp. 42-43
Author(s):  
Derek W. Johnson
2011 ◽  
Vol 2011 ◽  
pp. 1-64 ◽  
Author(s):  
M. A. Petersen ◽  
J. Mukuddem-Petersen ◽  
B. De Waal ◽  
M. C. Senosi ◽  
S. Thomas

We investigate the securitization of subprime residential mortgage loans into structured products such as subprime residential mortgage-backed securities (RMBSs) and collateralized debt obligations (CDOs). Our deliberations focus on profit and risk in a discrete-time framework as they are related to RMBSs and RMBS CDOs. In this regard, profit is known to be an important indicator of financial health. With regard to risk, we discuss credit (including counterparty and default), market (including interest rate, price, and liquidity), operational (including house appraisal, valuation, and compensation), tranching (including maturity mismatch and synthetic) and systemic (including maturity transformation) risks. Also, we consider certain aspects of Basel regulation when securitization is taken into account. The main hypothesis of this paper is that the SMC was mainly caused by the intricacy and design of subprime mortgage securitization that led to information (asymmetry, contagion, inefficiency, and loss) problems, valuation opaqueness and ineffective risk mitigation. The aforementioned hypothesis is verified in a theoretical- and numerical-quantitative context and is illustrated via several examples.


2010 ◽  
Vol 16 (3) ◽  
pp. 88-98
Author(s):  
Laurie S. Goodman ◽  
Roger Ashworth ◽  
Brian Landy ◽  
Lidan Yang

2010 ◽  
pp. 100826072521054
Author(s):  
Laurie S. Goodman ◽  
Roger Ashworth ◽  
Brian Landy ◽  
Lidan Yang

1968 ◽  
Vol 24 (5) ◽  
pp. 77-84
Author(s):  
Alan R. Winger
Keyword(s):  

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