Understanding the securitization of subprime mortgage credit

Arbeitspapier

In this paper, we provide an overview of the subprime mortgage securitization process and the seven key informational frictions that arise. We discuss the ways that 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 rating agencies assign credit ratings to mortgage-backed securities, and outline how these agencies monitor the performance of mortgage pools over time. Throughout the paper, we draw upon the example of a mortgage pool securitized by New Century Financial during 2006.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Staff Report ; No. 318

Classification and Topics

• Classification: Wirtschaft ; Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies ; Financial Institutions and Services: Government Policy and Regulation
• Subject: Subprime mortgage credit ; securitization ; rating agencies ; principal agent ; moral hazard ; Hypothek ; Securitization ; Asset-backed security ; Kreditrisiko ; USA

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Ashcraft, Adam B. ; Schuermann, Til
• Event: Veröffentlichung
• (who): Federal Reserve Bank of New York
• (where): New York, NY
• (when): 2008

Further information

• Handle: http://hdl.handle.net/10419/60823
• Last update: 10.03.2025, 11:44 AM CET