Abstract

http://ssrn.com/abstract=1071189
 
 

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Understanding the Securitization of Subprime Mortgage Credit


Adam B. Ashcraft


Federal Reserve Bank of New York

Til Schuermann


Oliver Wyman

March 2008

Wharton Financial Institutions Center Working Paper No. 07-43
FRB of New York Staff Report, No. 318

Abstract:     
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.

Number of Pages in PDF File: 82

Keywords: subprime mortgage credit, securitization, rating agencies, principal agent, moral hazard

JEL Classification: G24, G28

working papers series





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Date posted: December 14, 2007 ; Last revised: March 11, 2008

Suggested Citation

Ashcraft, Adam B. and Schuermann, Til, Understanding the Securitization of Subprime Mortgage Credit (March 2008). Wharton Financial Institutions Center Working Paper No. 07-43; FRB of New York Staff Report, No. 318. Available at SSRN: http://ssrn.com/abstract=1071189 or http://dx.doi.org/10.2139/ssrn.1071189

Contact Information

Adam B. Ashcraft
Federal Reserve Bank of New York ( email )
33 Liberty Street
New York, NY 10045-0001
United States
212-720-1617 (Phone)
212-720-8363 (Fax)
Til Schuermann (Contact Author)
Oliver Wyman ( email )
1166 6th Avenue
New York City, NY
United States
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