Study On The Inherent Risk Of The Mortgage-backed Securitization In China

As an important form of Asset-Backed Securitization, Mortgage-Backed Securitization (MBS) originated in the United States in the1970s. As a financing tool of Banks and other financial institutions, the combination of financial management and financial engineering technology is very perfect. Mortgage-Backed Securitization (MBS) not only can improve the bank’s capital structure, capital operating efficiency, but also enrich the products of capital marketing. Now, it has developed very maturely in the Western countries. Since the reforming of the Housing System in1998, with the prosperity and development of Housing Finance Market, China Construction Bank issued Mortgage-Backed Securitization products in2005and2007respectively, which were called "jianyuan2005-1"、"jianyuan2007-1". After that, because of the influence of the Subprime Mortgage Crisis, the development of MBS in our country has been a standstill. With the development of economy, the demand for housing loans to our urban residents is so strong and the gap of bank funds liquidity gradually intense.In the background of more strictly financial regulation and the Interest Rate Liberalization, I believe that the development of MBS in our country will be restarted again. But the same as other financial derivatives, MBS has Systemic risk and Non-systematic risk. What’s more, due to the complexity of the structures and participating subjects, MBS can defuse the risks to a certain extent. The macro environment for the development of standardized MBS model in our country is not satisfied, so the function of risk dispersing and transferring for the MBS cannot be fully reflected and the bank as the core institutions and the originator will face the main challenges and risks from the MBS. Stand on the view of bank, this paper focuses on the inherent risk of MBS:Prepayment risk and Credit risk, with the use of normative research and empirical analysis. What’s more, a detailed studying is on the the problem of MBS piloted products.First, the paper discusses the significance of the topic and background from both theoretical and practical level. This article describes the domestic and foreign scholars’ research results on the inherent risk of MBS, as well as a brief introduction of the domestic scholars’view in the valuation of MBS practices in China.Secondly, the section of basis theory explains relevant concepts of MBS, including:the concept of Asset-Backed Securitization and MBS, operational principles, operational processes and the relevant theory of risk prevention, which focuses on the operational principles and processes of MBS. The core principle (Cash flowing principle) and basic principle (Asset restructuring principle, Isolation of risk principle, Credit enhancing principle) is the important theoretical base of risk analysis in this paper. Selecting a suitable SPV model is a very important step in the process of MBS. In current situation of China, I think State-owned SPV model or Trust SPV model is more suitable for our country by compared the SPV models in foreign countries. Elaborating on the risk of MBS and theory of risk prevention provide a good theoretical basis for the risk prevention measures of the two main risks of MBS.Again, the Chapters III is the core part of this paper. On the base of MBS practice in China, this chapter analyzes two main risks of MBS in Securitization products-"Jianyuan2007-1", which is issued by China Construction Bank. Multivariate Regression Model and "AAA" Default Matrix are used to analyze the influence factors of Prepayment risk and Credit risk with "Jianyuan2007-1" asset pool data. The effect of Household disposable income and Mortgage rates on Prepayment risk is very large, but Housing prices’influence is very small. According to Fitch Ratings "AAA" Default Matrix, the effect of Housing prices on Credit risks is big, but the Credit risks for "Jianyuan2007-1" is very small, no matter in current or the future. The reason is that the Prepayment rate is very high, so the possibility of borrower violating treaty is small.Finally, on the base of above analysis, appropriate risk prevention measures that the bank could do are proposed to avoid the two main risks of MBS, hoping for a useful help for the development of MBS in our country.Since the time that the development of MBS in our country is short, few MBS cases, so with the limited available data and research capacity, there are still many defects and deficiencies on the theoretical study and empirical analysis in the paper.