Securitization and the Subprime Mortgage Crisis of 2007-2008

Abstract

The paper reviews literature on securitization process in real estate markets and an analysis of the subprime mortgage market crisis of 2007-2008. In particular, it presents a highlight of the various market participants in the securitization process and an overview of securitized transactions in the US secondary mortgage market. The paper further presents a highlight of financial malpractices precipitating the subprime mortgage crisis and the associated financial implications of the same. In addition, the paper identifies the institutions and participants in the subprime mortgage crisis securitized transactions leading to the housing market debacle. The paper further explores the creation of ABS and CDOs as an outcome of securitization and a review of empirical literature on financial implications associated with the abuse of securitized transactions in the US mortgage market.

Key Words: Securitization, Asset-Backed Securities, Special-Purpose Vehicles/Entities, Credit enhancement and Conduit Lending.