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Essay / Research Paper Abstract
This 5-page paper discusses how mortgage-backed securities and subprime loans helped spur the current economic meltdown. Bibliography lists 3 sources.
Page Count:
5 pages (~225 words per page)
File: D0_MTsubprian.rtf
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Unformatted sample text from the term paper:
almost everyone is becoming a bit of an economist. Terms like "securitization" and "mortgage-backed assets" and "subprime meltdown" are almost everyday terms now.
But what, exactly, are they? And how did the meaning behind these terms contributed to the collapse of the U.S. economy?
Securitization can actually be traced to the early 1990s, when the Resolution Trust Corp. (RTC) was created to buy up failed properties from the 1980s recession. At that
time, there became a broader securitization market for commercial properties, with the real estate securitization market broadening the existing investor class beyond the usual institutional investor and invited almost everyone
into the investment (Forte, 2009). While residential mortgage-backed securities had been around for awhile, new securitization structures let to the commercial mortgage-backed security, or CMBS (Forte, 2009). The 1990s saw
continued growth of the CMBS market, with the Asian financial crisis of 1998 causing issuers and originators to join together in programs to securitize their production into a single trust
(Forte, 2009). However, the terrorist attacks on September 11, 2001 dealt a blow to the real estate structured-finance business, and originators were
faced with the possibility that single trusts could be wiped out at a moments notice - thus creating the idea of slicing and dicing one large mortgage loan into several
smaller pieces (Forte, 2009). These smaller pieces could be divided into still smaller pieces, and sold on the capital markets (Forte, 2009). Wall Street enthusiastically adopted these collateralized debt obligations
(CDOs) for use in financing commercial real estate (Forte, 2009). Real estate CDOs boosted lending volume, and CMBS issuance grew to record levels (Forte, 2009).
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