On the Economics of Securitization: A Framework and Some Lessons from U.S. Experience

31 Pages Posted: 26 Jul 2007

See all articles by Robert Van Order

Robert Van Order

University of Michigan - Stephen M. Ross School of Business; University of Aberdeen

Date Written: May 2007

Abstract

The paper provides a framework for analyzing the development of securitization as a vehicle for funding loans. Broadly speaking there are two models for funding loans: the portfolio lender model, which typically involves banks or other intermediaries originating and holding the loans and funding them mainly with debt, most often deposits, and the securitization model, which involves tapping bond markets for funds, for instance by pooling loans and selling shares in the pools. A central issue with securitization is that while securities markets are efficient sources of funding, they also involve agency costs because bond market investors are often at an informational disadvantage relative to other traders. The paper discusses alternative structures and tradeoffs among them, and the role of the public policy in securitization.

Keywords: Securitization, structuring, bond markets

JEL Classification: G1

Suggested Citation

Van Order, Robert, On the Economics of Securitization: A Framework and Some Lessons from U.S. Experience (May 2007). Ross School of Business Paper No. 1082, Available at SSRN: https://ssrn.com/abstract=1002404 or http://dx.doi.org/10.2139/ssrn.1002404

Robert Van Order (Contact Author)

University of Michigan - Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

University of Aberdeen

Dunbar Street
Aberdeen, Scotland AB24 3QY
United Kingdom

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