U.S. Asset Securitization And Its Implication For China

Since the 1970s, asset securitization in the United States has been accelerating. Mortgage-backed securities and various derivatives have greatly improved the development of both American real estate market and financial market.Government has played an important role in Asset Securitization,so we should draw a good experience from it and use it for China's development of asset securitization. However, the recent sub-prime mortgage crisis has caused great attention to the risk-management in securitization and financial derivations. In that case,what role asset securitization plays in the Sub-prime mortgage loan crisis and how to conduct and spread risks in the critical?After analysis,I think that asset securitization have two sides impact on Sub-prime mortgage loan crisis.On the one hand,asset securitization connects credit market and security market,which results many types of financial institutions and investors join in the game,make the length of risk chain longer and small changes in the financial market can cause greate fan of The Butterfly Effect.On the other hand,asset securitization have an impact on some factors that result to crisis interest rates,such as prices,market information,ratings.After the comparative analysis of the development of asset securitization before and after the crisis,we can draw the conclusion that asset securitization has a "double-edged sword" nature,rational use of it and strengthen supervision can improve liquidity, transfer and diversify assets risks, thus promote economic development. On the contrary, irrational use of asset securitization and does not strictly regulate can cause magnify the risk so when the crisis happen, it will cause a domino reaction or the butterfly effect, as well as causing enormous losses. So we should balance between the pros and cons of asset securitization.Asset securitization is just the carrier of the crisis not the cause for the crisis. The true reason is that the standard of mortgage loans has been lowered,unopaque information,sub-prime mortgage-backed securities get higher credit ratings which it should have be, abuse asset securitization ; the lack of regulatory policy.It suggests that China should learn from the experience of securitization in U.S., and try to improve its risk-management accompanied by securitization, so as to ensure the steady and healthy development of asset securitization.The first part is the Introduction section, an overview of the theoretical topics of meaning and practical significance of the study of foreign scholars on the issue related to the literature reviewed. The second part is a brief overview of securitization;process of creation and development of asset securitization,product categories and the evolution path of asset securitization,the basic flow of asset securitization,asset securitization effects etc.In the third part analysis the U.S. mortgage-backed securitization model and its characteristics and the reason of rapid development of U.S. mortgage-backed securitization. Third part specificly analyzed three fundamental modes of U.S. Pass-Through Securities, Asset-Mortgaged Securities, Pay-Through Securities and its characteristics. Analyze. practice mode of U.S mortgage-backed securitization. In primary market Federal Housing Administration and Veterans Administration conduct the guarantee, and in secondary market Government National Mortgage Association (GNMA), Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corp (FHLMC) guarantee on the payment conductof the securities. This double guarantee ensure mortgage-backed securities obtain AAA rating, effectively solved mortgage-backed securities payment and its uncertainty problems.And also made mortgage-backed securities popular as new investment tool. Also analyzed U.S. mortgage-backed securitization features, including sound housing financial system; government plays core role in establishing mortgage-backed securitization; loan insurance system. Finally analyzed the reasons why U.S. mortgage-backed securitization rapidly developed. The reason includes the established multi-level institutions to regulate mortgage market and provide credit to support securitization; use government advantages to establish perfect legal system and rules; provide favorable policy environment to stimulate originaor; establish unified loan system to standardize contracts and regulate market trading.The fourth part analyzed the role of securitization in sub-prime mortgage crisis. First,analyzed the relationship between asset securitization and the subprime crisis. It is accumulation of high-risk subprime loansâ†'incorrectly or over-use of asset securitizationâ†'subprime mortgage crisis. Mortgage-backed securitization is the carriers of the subprime crisis. Second, analyzed the operation mechanism of the securitization in the subprime mortgage crisis. Then draw the conclusion that, mortgage-backed securitization forms a unique chain structure of interest on the surface,but sometimes it can also cut off the interest chain to cause the crisis.However, from the point of evolution view, the fundamental reason of sub-prime crisis is that financial institutions did not pay sufficient attention to borrower's credit. Mortgage-backed securitization is by no means not the root of the subprime crisis, but acted as the carrier and enlarger of the risk in transmission. The real cause of the subprime mortgage crisis is inherent high credit risk in the subprime. Finally concretely analyzed the sub-prime crisis of the various internal and external reasons, namely, lower mortgage loan standards; opaque information; high credit rating of sub-prime mortgage-backed securities; abuse mortgage-backed securitization; lag or missing of the regulation.The fifth part is the U.S. mortgage-backed securities experience, lessons and inspiration. Its experience includes government-backed organizations are important forces in developing U.S.mortgage-backed securitization;product innovation and market competition are the driving forces in sustainably developing the U.S. mortgage-backed securitization; the legal establishment and tax relief and other incentives are the important guarantees in promoting mortgage-backed securitization. Its lessons are also the reasons of the subprime crisis, which is, lower mortgage loan standards; opaque information; high credit rating of sub-prime mortgage-backed securities; abuse mortgage-backed securitization; lag or missing of the regulation.The Enlightenment to China, includes strict standards for the issuance of mortgage; establish and improve the credit system, strictly classify borrower's credit; improve the credit rating system; change the traditional form of regulation; steadily promoting mortgage-backed securitization.The last is conclusion part. Draw the conclusion that any financial innovation is like kind of a"double-edged sword",so we should balance its income and risk,so that avoiding its disadvantages.Through innovative approach we could transfer partial financial risk , but could not fundamentally eliminate the risk, instead,it accumulate to the system risk. So the borrower's credit is still the basis for the survival of the mortgage-backed securitization. Securitization is the carrier of the crisis, not the real cause of crisis, the crisis is due to lower mortgage loan standards; opaque information; high credit rating of sub-prime mortgage-backed securities; abuse mortgage-backed securitization; lag or lack of regulation. Also,we can not totally reject the financial innovation, and stop the pace of innovation, but should promote financial innovation prudently in the premise of maintaining financial stability.