Asset securitization of assets continuously expand the scope 

From the credit assets to future cash flows
Asset securitization of assets continuously expand the scope
In 2013 09 months 28 days 10:47   Bashusong Niu BokunSource: Financial Times  

   Asset securitization is one of the most important innovation of financial market in twentieth Century. Closely related to asset securitization and the rise of American financial liberalization process. Back in twentieth Century 60's at the end of USA financial system, the rapid development of the housing market, the accumulation of a large number of long-term loans in the financial system, financial institutions, asset liability mismatch is serious; in the face of economic stagnation, the Fed started the reform for the marketization of interest rates. But the reform process, the liquidity of credit institutions appeared serious difficulties. Liquidity risk, in order to resolve the credit institutions to continue to support residents purchase, USA government promoted the development of asset securitization products.

　　The evolution of RMBS based assets:

From the mechanism of secured loans to non institutional guarantee loans, subprime loans

Early asset securitization products are USA "Freddie Mac" and "Fannie Mae" and "Ginnie" guarantee issue, which belongs to the "agency backed" RMBS. Enter the "institutional guarantee" asset pool of mortgage loan is approved by the FHA or VA guaranteed mortgages, and mortgages may not exceed a certain limit. The limit is adjusted annually, 70's $300000.

In order to solve the liquidity problem of transfinite loans, Bank of America in 1977 issued its first non agency securities. "The fundamental difference between non institutional guarantee" and "institutional guarantee" is the foundation of asset credit rating. Early "non institutional guarantee" for the many high credit quality of mortgage loans, the government does not guarantee its default risk.

With the development of RMBS market, private sector participation more and more RMBS products issued by the. The private sector can also buy a government guaranteed loans and the issuance of RMBS products, but they are more involved in high margin non institutional guarantee RMBS service. Early basic assets non institutional guarantee of RMBS include large loans (Prime Jumbo), subprime loans (Alt-A, or Near-Prime Jumbo), both credit quality is very high, are obviously different with the subprime ABS products. After 2008, the non MBS products decreased.

In the late 90's of the 20th century REMICs market after recovery, RMBS non institutional guarantee especially prominent, its issuance from $70000000000 in 1996 to $860000000000 in 2004, and in 2006 increased to $1.2 - trillion. Then according to the credit quality of underlying assets, the market non institutional guarantee RMBS into two categories, including credit quality higher still called the non institutional guarantee RMBS; said of lower credit quality for subprime securities (subprime security), namely "subprime mortgage".

In late twentieth Century 90, subprime mortgages began to increase rapidly, the corresponding loan securitization products also enter the outbreak period. Subprime lending refers to the borrower's credit rating is low, the housing mortgage rate is high for a class of housing mortgage loans, but the asset securitization product classification, the RMBS up to 96% share in a more priority, 3% share in the subprime, 1% in inferior level, where the subprime and inferior part the excess spreads, excessive security mode of credit. With the development of financial engineering, also appeared two times of securitization products, RMBS products to subprime priority bonds as collateral assets issued CDOs CDO. CDO products further classification, its priority in coordination with the CDS product can be obtained even under AAA rating; subprime and priority is packaged, another issue of CDO products. So the cycle, spreads more and more high.

There are several reasons, the development of RMBS. The last century in the late 90's to 2005, USA real estate prices continue to rise, consumers generally consider purchase loans even though the future is unable to pay, also can obtain profit through the sale of housing; lending institutions that, in the event of a default, may auction housing mortgage loan cost from the. The steel supply and demand environment, increase the size of subprime loans. From 2001 to 2005 America at a rate cut cycle, the RMBS due to high income and pursued by the market; the second half of 2005, interest rates began to rise, the subprime mortgage default rates all the way up, and hurt the subprime RMBS products.

　CMBS:

Foundation assets from the development of individual housing loans to commercial housing loans

Commercial real estate mortgage backed securities of CMBS is RMBS in the housing mortgage backed securities of asset securitization products. CMBS first appeared in twentieth Century 80 years, began to develop rapidly in the mid 90's, issuing scale from the early 90's $4000000000 to $210000000000 in 2006. In 2007, the scale of CMBS stock outstanding at $872400000000.

CMBS and RMBS in cash flow structure is very similar, but there are differences in the borrower, loan, collateral. CMBS based assets for office buildings, industrial buildings, hotels and other loans, debt paying cash flow from the rent. In the prepayment risk, commercial real estate mortgage loans and housing mortgage loan has the important difference. Housing mortgage loan before maturity, at any time can be early repayment, while commercial real estate mortgage with a lock up period, interest compensation and other protective measures in advance repayment.

The commercial activities of the uncertainty is much higher than the purchase of housing, commercial real estate mortgage default rate is much higher than the housing mortgage loan. In the CMBS design process, out of caution principle, the rating agencies will to revalue all the basic loan.

　The rise of CLO:

Other credit assets outside the housing loans into asset pool

In addition to housing mortgages, commercial real estate mortgage loans, credit card receivables, auto loans, student loans and three kinds of main products of credit asset securitization.

Credit card cash flow to repay ABS products by consumers monthly credit card consumption model. Compared with the real estate mortgage loans, credit card receivables smaller; do not repay to amortize the way, but the monthly minimum payments arrears; higher interest rates; no collateral, default would not have loss recovery. Credit card receivables cash flow uncertainty, in the structure design of ABS products, divided into the rights and interests of investors, the sale of human rights; rights and interests of investors can be further divided into priority, secondary; human rights for sale profit about initial principal 4%-7%, to be purchased by the issuer, used to absorb the monthly fluctuation amount of receivables.

The auto loan ABS products and real estate mortgage backed securities is very similar, are fixed rate, fixed term and loan payment plan, but the amount is smaller, shorter term. American car loan ABS issuers, general, Ford domestic brand automobile financial company, also in Europe, Japan and other foreign brands of automobile financial company, and Household, AmeriCredit for low credit level of customers the issuer. Auto loans have prepayment risk, but the real estate category compared, the early repayment of the relatively low ratio.

From the absolute amount and proportion of various types of loans, car loans, the largest, but the proportion gradually decline; credit card loans, equipment rental payment ratio has increased; other assets ABS decreased.

　Out of the credit assets:

The underlying asset pool expanded to have stable cash flow of assets

In twentieth Century 90, asset securitization concept further expand into non credit assets, the expected future cash flow of the products have stable theory can issue asset backed securities. Non credit assets are mainly the following three categories: one is the project of non financial assets, infrastructure such as roads, bridges and other charges receivable, petroleum, natural gas, electricity and other energy income, aviation, railway, shipping freight income. Two is the public income assets, such as government future taxes, finance income. Three is the intellectual property income, such as copyright, patent right.

But compared with the credit asset securitization, asset securitization products are much smaller, the 2012 issue of scale only accounted for 7.2% of all ABS products scale. The developed USA capital market, the financing channels are optional, compared with corporate debt issuance tool, asset securitization high cost.

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