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Did Structured Finance Contribute To The Sub-Prime Mortgage Crisis in the US? (2009)

Ref: fin0015

Few people knew what sub-prime means before the summer of 2007 as the mortgage market in the United States (US) experienced difficulties with sub-prime mortgage (mortgages to low income borrowers) defaults on a large scale. These insolvency problems spread very fast through the whole financial system by defaults in structured products on sub-prime mortgages and caused international investor panic and equity markets downturn. Furthermore, some financial institutions became insolvent and had to be rescued by the governments. It has been argued that securitization along with structured finance have contributed to the rise of lending in the sub-prime mortgage market and thus provided excess of liquidity, which resulted in overlending and lax mortgage granting procedures. Thus this study concentrates on the connection between structured finance and mortgage markets. The goal of the study is seen as investigating the role of securitization in the US mortgage lending and borrowing market as well as the leverage of structured securities such as Collateralized Debt Obligation (CDO). Thus the securitization activity in the mortgage market before the sub-prime defaults as well as the credit deterioration of structured securities after these defaults have been investigated. The results suggest that mortgages were indeed to a large extend securitized by some lenders and possibly the demand for these securitized tranches have caused more money supply in this market. Furthermore, the study finds out that structured securities are indeed more leveraged and risky than anticipated by investors and thus there could have been some underestimation of credit risks when restructuring sub prime mortgages.

  • 10,000 words – 65 pages in length
  • Excellent use of literature
  • Good in depth analysis
  • Well written throughout
  • Ideal for finance and business students


1 Introduction

Reasons For Topic Chosen
Academic Objectives
Outline

2 Literature Review
Chapter Overview
Securitization
Definition
MBS And CDO
Structured Finance Credit Rating
To Securitize Or Not To Securitize

3 Methodology
Chapter Overview
Method
Securitization Trend (Hypothesis 1)
Credit Rating Downgrades (Hypothesis 2)
Method Justification
Research Limitations

4 Findings
Chapter Overview
Securitization Trend (Hypothesis 1)
Credit Rating Downgrades (Hypothesis 2)
S&P Statistics
Moody´S Statistics
Fitchratings Statistics

5 Analysis
Chapter Overview
Securiitzation Trend (Hypothesis 1)
Credit Rating Downgrades (Hypothesis 2)

6 Conclusion
Summary
Limitations
Areas For Further Research

References

Bibliography

Appendix Section
 


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