What is Securitization?
And How Did It Pop the Subprime Loan Bubble?
Mark Zandi
To fully understand the subprime mortgage implosion, you need to know how subprime mortgages were financed. Fundamentally, loans either are financed directly by financial institutions such as commercial banks and thrift institutions or are repackaged as bonds (that is, securitized) and sold to investors, who keep or trade them in global financial markets. The overwhelming majority of subprime loans were securitized.
A quarter-century ago, most mortgage loans were funded the old-fashioned way: Commercial banks or savings and loans loaned the money they had received from depositors. Only a tenth of mortgage loans were securitized, and the securities market was dominated ...
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