Research On Risk Prevention Mechanism Of Residential Mortgage Securitization In China

Residential mortgage-backed security is the most successful financial derivatives since 1970 over the world. With this tool, the loan assets of the bank can be converted to securities which can be traded on the open market, such as bond. Then the bank who sold the loan gets the assets with high liquidity: cash. Each developed country has a huge MBS market. China also launched a pilot project of MBS in 2005. hoping to get some experience and promote it at an appropriate time. With the continual increasing of the amount of mortgage loans, the commercial bank is facing more and more liquidity risk. Therefore, mortgage-backed securitization is the inevitable choice of the development of China's commercial banks. However, the sub-prime crisis happened in U.S. warn us that mortgage-backed securitization is a double-edged sword. When it transfers the risk from commercial bank to the security market, it may also increase the risk. So we must set up perfect regulation system before promoting this product.This article firstly discuss about the present situation of residential mortgage loans market and the trait of the pilot work of residential mortgage securitization in China. The second part, it is a brief analysis of the U.S. sub-prime crisis and its impact on the future of residential mortgage securitization in China. The third part, I analyze the potential risks we may encounter in the future and try to find the preventive measures. Finally, I try to raise some useful suggestion on the construction of the regulation system of residential mortgage securitization.