Securitization of Subprime Mortgage by Edu Pristine

Author of lecture Securitization of Subprime Mortgage

Edu Pristine

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... The borrower is usually unsophisticated while the lender has the advantage to steer the borrower to products that are not suitable for them. Friction 2: Originator and arranger: The arranger purchases loans from the originator. But they have an information disadvantage with respect to ...

... the investor to comprehend the investment strategy and they will depend on the asset manager and his team to identify and exploit any opportunities. Friction 7: Investor and credit rating agencies ...

... together contributed to cause the crisis. Friction 1: The complexity of the product and naivety of the borrower led to inappropriate loans Friction 6: Managers wanted higher yields w/o assessing ...

... High DSCR (50% or more). The loan is usually in the form of a teaser rate for a short period and a floating rate for the remaining period of the ...

... most tranche and then later to the senior tranches. The equity tranche takes the first loss and is created from overcollateralization. The next higher subordinated level is a mezzanine tranche with a slightly higher rating of (AA to B). ...

... the tranche absorbs any loss. When a credit rating is associated with the probability of default, the amount of credit enhancement is simply the level of loss ...

... important when giving ratings to ABS securities ABS represent a claim on the static pool and one cannot infuse additional capital or restructure the assets. Cash flows ...

... that one should not see upgrades concentrated during a housing boom and downgrades concentrated during a housing bust. Rating agency must respond to shifts in the loss distribution by increasing the amount of needed credit enhancement to keep ratings stable as economic conditions deteriorate. Stabilizing of ratings through the cycle ...

... Lower spreads to borrowers and weaker underwriting. Higher spreads to borrowers and stronger underwriting. Lower HPA Higher HPA Contribute to a credit and house ...

... key inputs into the cash flow analysis involve: The credit enhancement for given credit rating ...

... identified seven signs of a predatory loan: Excessive fees, defined as points and other fees of five percent or more of the loan. Abusive prepayment penalties, defined as a penalty for more than three years or in an amount larger than six months interest. Kickbacks to brokers, defined as compensation to a broker for selling a loan to ...

... mortgage brokers, appraisers, notaries, attorneys. The victims of this fraud include the ultimate purchaser of the loan (for example a public pension), but also include honest ...