Study Says Securitization Lowers Credit Costs, Expands Supply

Securitization has taken a beating for its role in the financial and economic crisis ignited by the meltdown of securities backed by subprime mortgages. But a new study by NERA Economic Consulting finds that securitization has many benefits including lower borrowing costs and increased lending to underserved populations.

In the fall of 2007, the American Securitization Forum (ASF) commissioned a NERA team — led by Senior Vice President Dr. Chudozie Okongwu and Vice President Dr. Faten Sabry — to conduct a study to evaluate the impact of securitization on consumers, investors, and the broader financial markets. A primary motivation for commissioning this study was ASF’s assessment that there was little academic or other research that attempted to evaluate and quantify the broader economic impact of securitization in an analytically rigorous way. The study assesses the long term impact of securitization, with a focus on the residential mortgage-backed securities market.

The study found that securitization has produced significant economic benefits in certain markets.

Specifically, the study highlights that:

• Securitization lowers the cost of consumer credit, reducing yield spreads across a range of products including mortgages, credit card receivables, and automobile loans.
• Increases in secondary market purchases and securitization of mortgage loans have positive and significant impacts on the amount of mortgage credit available per capita, particularly among traditionally underserved populations. Conversely, declines in secondary market purchase and securitization activities negatively impact the amount of available mortgage credit. The analysis controls for the credit quality and demographics of the loans.
• A reduction in securitization activity has a negative impact on all types of lending activity, including but not limited to residential mortgages. The study predicts that bank lending activity is likely to be significantly and negatively impacted if securitization remains at its current, depressed level.

Comments

[Dave Wrixon]

Well not at the moment it doesn't.

2009 Jun 26 06:28 PM

[PastTense]

Key Date: "In the fall of 2007..." (study was commissioned...)

Since 2007 much of this securitization has now been shown to be toxic waste.

2009 Jun 26 10:54 PM

[whidbey]

Dear God,

Why do you permit such travesty? Ask NERA if their paying client has been complicit in the wreaking of the Economy? We need no research, we know the answer, it was foreordained and easily predictable. "No! and murder is meritorious and Larceny is legal"
I am going to go lay down until this passes.

2009 Jun 27 10:35 PM

[derryl]

Securitization improves availability of loans to those who don't qualify by packaging those loans and selling them to investors who don't know what's in them. But the jig is up on selling packaged junk as 'investments'.

2009 Jun 29 12:36 AM