...did the Securitization of Loans Contribute to the Housing Crisis? “Worm or beetle - drought or tempest - on a farmer's land may fall, Each is loaded full o' ruin, but a mortgage beats 'em all” (Will Carleton 1845-1912). A mortgage is the greatest investment the average individual will make in their entire life-time. However, according to today’s standards, the true magic of a mortgage is not when one signs the note and mortgage but what the lender does with it after it has been conveyed. In almost every case after a mortgage is signed, it is almost immediately sold to the secondary market, this is where the loans become securitized. This is where most Americans believe is the root of our current housing crisis. This paper will analyze (1) why most Americans believe that loan securitization is the reason why we are in a housing crisis. (2) How lax screening processes by lenders played a part (3) Risky lending practices and (4) finally, the opposing views on securitization and our current crisis. Why do most Americas believe loan securitization is the problem? In most cases, when we can’t laugh at our mistakes, we have already started looking for someone to blame. In the case of our current mortgage crisis, we have engaged in a myriad of who’s to blame. Some say the lenders failed to properly screen borrowers, while others say the government protected the secondary market as they bought and sold one bad note after another. Most people believe that securitization started in...
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...Asset-Backed Securities The Securitization Process Prof. Ian Giddy Stern School of Business New York University Asset-Backed Securities q The basic idea q What’s needed? q The technique q Applications q Typical sequence Copyright ©2001 Ian H. Giddy globalsecuritization.com The Securitization Process3 Securitization of Assets Securitization is the transformation of an illiquid asset into a security. q For example, a group of consumer loans can be transformed into a publically-issued debt security. q A security is tradable, and therefore more liquid than the underlying loan or receivables. Securitization of assets can lower risk, add liquidity, and improve economic efficiency. q Sometimes,assets are worth more off the balance sheet than on it. q Copyright ©2001 Ian H. Giddy globalsecuritization.com The Securitization Process4 What is the Technique for Creating Asset-Backed Securities? A lender originates loans, such as to a homeowner or corporation. q The securitization structure is added. The bank or firm sells or assigns certain assets, such as consumer receivables, to a special purpose vehicle. q The structure is legally insulated from management q Credit enhancement and rating agency reviews q The SPV issues debt, dividing up the benefits (and risks) among investors on a pro-rata basis q Copyright ©2001 Ian H. Giddy globalsecuritization.com The Securitization Process5 Securitization: The Basic Structure SPONSORING COMPANY ACCOUNTS...
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...Is Kenya ripe for securitization of real estate? Defination of securitization Securitisation is the issuance of debt certificates that are secured by cash flows from different kinds of assets. The issued securities are called Asset-Backed Securities (ABS). In essence a pool of payment claims are packaged and are made to securities in order to create a secondary market for the underlying receivables or other various illiquid assets. Securitisation is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations and selling said consolidated debt as bonds, pass-through securities, or collateralized mortgage obligation (CMOs), to various investors. The principal and interest on the debt, underlying the security, is paid back to the various investors regularly. Securities backed by mortgage receivables are called mortgage-backed securities (MBS), while those backed by other types of receivables are asset-backed securities (ABS). Therefore, securitization of real estate is the pooling of real estate assets as underlying assets securing a debt, which is issued to investors in return for cash flows from the underlying real estate assets. The illiquid real estate assets that generate a constant cash flow are formed into a tradable security and are floated on the debt market. Securitization process In its most basic form, the process involves two steps. 1. A company with loans...
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...MEMORANDUM TO: Senior Accounting FROM: Staff Accountant DATE: June 29, 2015 SUBJECT: Shared-Based Payment Reporting and Special Purpose Entities (SPE) CC: Team members ______________________________________________________________________________ As an Accounting Firm it is very important that we follow the most recently changed or amended regulations and standards set by the Financial Accounting Standards Board (FASB). As of 2009 the Financial Accounting Standards Board (FASB) has made amendments to Shared-Based Payment Reporting and Special Purpose Entities. The amendments made were to Statements No. 123 and 95 which covers the Share-Based Payments and Statements No. 123 and 95; the FASB. Also revised, Statements No. 166 and 167 which pertains to Special Purpose Entities (SPE). Share-Based Payment Reporting In the process of an audit, it is important to review the accounting process in terms of how share-based payment is reported to Sensure the entity processes are in line with Generally Accepted Accounting Policies (GAAP). Share-based payment is a complex area to both report on and audit as almost every transaction is unique and referencing IFRS No.2 for the purpose of the audit is not always clearly defined. Defined, share-based payment is an arrangement in which an entity purchases goods or services in exchange for issuance of the entity’s equity instruments or cash payments based on the fair value of those equity instruments. IFRS No.2 has two defined...
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...¬performing asset (NPA) is a loan or an advance where; i. interest and/ or installment of principal remain overdue for a period of more than 90 days in respect of a term loan, ii. the account remains ‘out of order’ as indicated at paragraph 2.2 below, in respect of an Overdraft/Cash Credit (OD/CC), iii. the bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted iv. the installment of principal or interest thereon remains overdue for two crop seasons for short duration crops, v. the installment of principal or interest thereon remains overdue for one crop season for long duration crops, vi. the amount of liquidity facility remains outstanding for more than 90 days, in respect of a securitization transaction vii. in respect of derivative transactions, the overdue receivables representing positive mark-to-market value of a derivative contract, if these remain unpaid for a period of 90 days from the specified due date for payment. 3. Banks should, classify an account as NPA only if the interest due and charged during any quarter is not serviced fully within 90 days from the end of the quarter. Out of Order: An account should be treated as 'out of order' if the outstanding balance remains continuously in excess of the sanctioned limit/drawing power. In cases where the outstanding balance in the principal operating account is less than the sanctioned limit/drawing power, but there are no credits continuously for 90 days...
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...Case studies 4 Zubair Chapter 9 SUKUK BONDS VERSUS SECURITIZATION Sukuk are of two general types: Islamic bonds and securitizations. Islamic bonds are based upon the credit of an entity that is participating in the transaction, such as the issuer, a guarantor or another provider of credit support. Securitizations involve a transfer of assets from an originator into a trust or similar special purpose vehicle (SPV) with the issuance of securities by that trust or SPV. Payments on the issued securities (the sukuk) are derived solely from the payments received in respect of those transferred assets, rather than any general credit of an issuer or participating party. Thus, securitizations are based upon the credit of the securitized assets. To date, most sukuk issuances have been Islamic bond issuances. True securitization sukuk issues are rare, and issues of this type that have been rated by a major international rating agency are nonexistent. While both types of issuances access the capital markets and are necessary for balanced growth of the capital markets, true securitizations have benefits that transcend those available from bond issuances alone. Securitizations allow, often require, broad diversification of the assets in the securitized pool. The originator of the transferred assets uses the securitization to manage its balance sheet and capital structure. The originator transfers assets that generate deferred payments and receives an immediate cash payment from the capital...
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...|Securitization | | | |Project for Final Evaluation | | | |6/13/2009 | | | |Priyanka and Baljeet | This project with International Autotrac Finance Ltd as a combination of hard works & challenges and was both exciting and simulating. No project being individualistic efforts, this is one too is a combination of the efforts and views of many people. I would like to express my gratitude to all. First I would like to thanks Dr. Gurwinder who has given me the opportunity to do summer training in Sonlaika International Tractors Limited. I am very thankful to Mr. Rohit Mohan (Manager Finance cum Company Secretary), without his efforts it would have been impossible for me to get and complete project. I want to pay my regards to Ms Richa Gautam for being my corporate guide and as well as for continuous encouragement and guidance which he has given...
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...research and further study (Research Proposal)……………….3 Further explanation of the intended research topics………………………………………..4 Securitization…………………………………………………………………………………………………..4 Credit Derivatives…………………………………………………………………………………………….6 Hybrid Products……………………………………………………………………………………………….7 Re-Securitization……………………………………………………………………………………………..8 Contribution of these products towards Financial Crisis…………………………………..8 Improper Risk Management role in Financial Crisis………………………………………….9 Risks………………………………………………………………………………………………………………..10 Market Risk……………………………………………………………………………………………………..11 Credit Risk……………………………………………………………………………………………………….11 Liquidity Risk……………………………………………………………………………………………………11 Interest Rates and the Financial Crisis………………………………………………………………12 Relation between low interest rate and financial crisis…………………………………….12 Role of Rating Agencies……………………………………………………………………………………14 Structure Finance Products and Rating Agencies……………………………………………..14 Regulations Then and Now………………………………………………………………………………15 BASEL II……………………………………………………………………………………………………………16 Enhancements of Basel II…………………………………………………………………………………18 The Resecuritisation Exposure Using IRB Approach………………………………………….18 The Resecuritisation Exposure Using Standardized Approach…………………………..18 Operational Criteria for Credit Analysis……………………………………………………………19 Securitization Liquidity Facilities – Standardized Approach………………………………19 Conclusion……………………………………………………………………………………………………….21 SOURCES …………………………………………………………………………………………………………22 ...
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...crisis. The reason for this is “APRA noted that the financial crisis exposed the limitations of existing liquidity reporting rules when markets are under severe stress” (Baltazar, 2009, para.8). APRA (2009) said the financial crisis has highlighted the need for ADIs to have adequate levels of liquidity and robust liquidity risk management systems, and has provided considerable insights into better practice in this area. APRA supports the Basel Committee’s measures and agrees that greater international consistency in prudential regulation, promoted by the Leaders of the G20, will strengthen Australia’s prudential framework. Securitization is the process of taking an illiquid asset, or group of assets, and through financial engineering, transforming them into a security. It is an important source of liquidity for banks. A typical example of securitization is a mortgage backed security (MBS), which is a type of...
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...financial risk, to hide debt or ownership, to minimize bankruptcy risk and obscure relationships between different entities that are in fact related to each other. Commonly, because of the financial risk of a large project, the company will transfer assets to the SPV for management and narrow the risks by putting the entire firm at stake. Most importantly, SPV is formed as a separate company that theoretically has no connection with the sponsor. In order words, the owner of SPV legally must show no relationship to the main company. Furthermore, besides all of the reasons listed above of establishing a SPV, securitization is a must known, which is used to securitize loans. Asset securitization provides another way for a company to raise cash in the capital markets as well as transfer risk of default on high-risk debt, such as credit card receivables. If asset securitization could be a desirable way for a company to raise cash, an experienced professional can help it evaluate whether the costs of transaction outweigh the benefits. Limited company, cooperative structure, and trust are three basic forms of a SPV. However, besides the great advantages of various forms of SPV, there are also disadvantages. To cooperative structure, minimum of seven members are required in registration. SPV in the form of...
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...ASS4Part1contd 'Storing the firm fixed-effects estimator in the simulated sample HoldbetasimFE(sim) = Application.WorksheetFunction.Index(Application.WorksheetFunction.LinEst(wfroa, wfPE), 1, 1) 'Block bootstrap loop for the FE estimator For j = 1 To b For g = 1 To s r = Int(Rnd * s) + 1 'This picks a random firm identifier For m = 1 To Y 'This loop runs over each year present in a given block i = (g - 1) * Y + m 'This creates an identifier i for observation of block g and period m in the bootstrapped sample Holdroa(i) = wfroa((r - 1) * Y + m) HoldPE(i) = wfPE((r - 1) * Y + m) Next m Next g HoldEst(j) = Application.WorksheetFunction.Index(Application.WorksheetFunction.LinEst(Holdroa, HoldPE), 1, 1) Next j 'Generating the acceptance decision for the FE estimator using block bootstrap in the simulated sample HoldacceptblockFE(sim) = 0 If HoldbetasimFE(sim) > 1.96 * Application.WorksheetFunction.StDev(HoldEst) Then HoldacceptblockFE(sim) = 1 'Classic bootstrap loop for the FE estimator For j = 1 To b For i = 1 To obs r = Int(Rnd() * obs) + 1 Holdroa(i) = roa(r) HoldPE(i) = PE(r) Holdfirm(i) = firm(r) Next i 'Computing Deviations of both Holdroa and HoldPE from their within-firm mean For k = 1 To s 'This step creates temporary variables including...
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...Asset Securitization Securitization is the process of pooling and packaging Financial Assets, usually relatively illiquid, into liquid marketable securities. Securitization allows an entity to assign (i.e. sell) its interest in a pool of financial assets (and the underlying security) to other entities. The originator packages a pool of loans and assigns his interest therein, including the underlying security, to a bankruptcy remote and tax neutral entity which, in turn, issues securities to investors. The idea is to completely transfer the interest in pool of loans to the investors (a “true sale”) and achieve a rating higher than that of the Originator. Thus, in all cases of debit where a negotiable security is created, the process is called Securitization of debt. It would improve repayment culture of borrowers. It would reduce lending risks for a banker. In other words, liquidity is infused through the process. It can also enable a bank to improve its CAR Through securitization transaction, an originator can transfer the credit and other risks associated with the pool of assets securitized. It can provide much needed liquidity to an Originator’s balance sheet; help the originator churn its portfolio and make room for fresh asset creation; obtain better pricing than through a debt-financing route; and help the originator in proactively managing its asset portfolio. Securitization allows investors to improve their yields while keeping intact or even improving the quality...
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...Incentive-Owners of transmission sites seek long term, nonrecourse financing. Market Industry Strength 1) Continuing demand for wireless connections 2) Potential for cash flows from cell towers to remain relatively stable 3) Low tech nature of collateral allowing for reliable valuations 4) Limited supply of municipal permits for the sites: Barriers to Entry Securitizations combine characteristics of three basic industries 1) Telecommunications 2) Equipment leasing 3) CRE Transactions are telecommunications equipment leases where note-holders are repaid from existing lease payments and future flows from lease renewals. In addition to the lease payments, noteholders typically secured by a first lien on the cell tower equipment as well as a security interest in the land or ground lease where towers are located. Collateral Pool -Transmission sites generally consist of Land, Towers, antennae, lines. Base stations, Structure [pic] Risks/Analysis 1) Payment Shortfalls 2) Refinance 3) Vacancies 4) Technological Obsolesence Pricing CCI 2010 CCI 2006-1A Class Spread Class Price 5 Yr 178| AFX 105.25|106 7 Yr 184| AFL 98.75|100 10 Yr 190| B 105|106 C 105|106 GTP 2010 ...
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...The process of securitization as core of the subrime mortgage crisis The process of securitization created many opportunities for financing, given that the US financial system is much diversified and does not depend only on bank financing. Indeed, a long chain of intermediaries are involved in channeling funds from the ultimate creditors to the ultimate borrowers. The simple model of intermediation chain would consist of households (borrowers), mortgage bank and household (depositor). On the contrary, a long intermediation chain includes borrowers, a passive firm whose role is to hold mortgage assets securities (MBSc) and issue liabilities, an issuer who pools the MBSc into another layer of claims (such as CDOs), an investment bank which buys these securities and finance itself by collateralized borrowings through repurchase agreements (repos) with a large commercial bank, instead of issue short term securities on the money market in order to fund its lending. The last link of the chain is the households who will to invest their savings for higher yield. The establishment of a long intermediation chain enables the dispersion of credit risk to those who can better bear losses (rather than concentration in the bank’s balance sheet that was a case in the traditional model). It makes easier to perform maturity transformation (from long term to short term claims) and it enables some financial intermediaries to specialize in screening borrowers, others in arranging initial short...
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...Securitization Theory Author Institution Course title Instructor Date Critically discuss the securitization theory – using the case study of War on terror in Afghanistan (2001-2012) Introduction Security study was in the past regarded as a sub-discipline of international relations underpinned in Anglo-American thinking. Until early 1990s, security studies were considered as a strategic studies focusing on a strong military focus. This traditional view of security involved the protection of the state and a scientific agenda to secure the state from definable threats and maintain the status quo. This is a positivist approach which was based on rationalism and realism. The Copenhagen School presented an alternative view of security studies by responding to the traditional approach of forming a clear sense of ‘what is security’. This approach is defined in three mechanisms: development of sectors approach to security, developing a regional focus on security and critically engendering a social constructivist theory of security through securitization studies. This theory will be the main focus of this discussion. To achieve a critical discussion of what securitization really entails, this paper will use the case study of USA’s war on terrorism in Afghanistan. The approach used by the US government to fight against terrorism in Afghanistan and Iraq can be considered as a securitization approach which has led to a resulted in security problems in the two countries rather...
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