subprime mortgage crisis & securitization 19 jan-2014 - v 01.00.05
TRANSCRIPT
Securitization and Subprime
Mortgage Crisis
Group (A)
• Walid Zohair
• Wael Morgan
• Mohamed El Garhy
• Ahmed Rostom• Sama Nawar
ESLSCA 43A
International Finance
Dr. Ahmed Bahaa
Agenda
Introduction
What is Securitization
What is Subprime?
What was the Crisis? – The Melt Down
What Caused the Crisis?
Crisis Consequences
Learned Lessons
What is Subprime?
Securitization
Securitization
Elements for Successful
Securitization
Secondary Market for Bonds.
SPV’s – Special Purpose Vehicles.
Large liquid market.
Efficient Rating Companies.
Home Buyer LenderInvestment
Bank
Rating Agencies
AIG(Credit Default Swaps)
Investors
CDO’S
Mortgage Payment
Linked
Advisory
Main Payment
Insurance Against Failure
Sold To
Mechanism of Securitization
Securitization in Egypt
What went wrong?
What went wrong?
What Caused the Crises
What Caused the Crises
1. Housing market
2. Financial markets
3. Governmental policies
4. Other contributing factors
What Caused the Crises
1. Housing market
Boom and bust
Homeowner speculation
High-risk mortgage loans and lending/borrowing practices
Subprime mortgage market (First Lein)
Mortgage fraud and predatory lending
What Caused the Crises
2. Financial markets
Boom and collapse of the shadow banking system
Securitization
Financial institution debt levels and incentives
Credit default swaps
Inaccurate credit ratings
What Caused the Crises
3. Governmental policies
Decreased regulation of financial institutions
Policies to promote affordable housing
Community Reinvestment Act
State and local governmental programs
Government Sponsored Enterprises (GSE) that purchase mortgages, buy and sell mortgage-backed securities (MBS),
What Caused the Crises
4. Other contributing factors
Policies of central banks
Mark-to-market accounting rule
Globalization, technology and the trade deficit
Consequences
Consequences
Consequences
Learned Lessons
Originator sources (underwrites)
loan
Borrower Originator
Lemon
Loan
* The note comes with algebra that solves for our share of
the cash flow waterfall. I think they will send us a check
I don’t see the asset? What do we own again?
We own a CDO. It’s a note* collateralized
by another note which itself is collateralized by a pool of loans
Q&A