Signe

A Beautiful Model for Loan Fraud

It is utterly ridiculous to insist that current conditions in the mortgage market are attributable to securitization. Before securitization, when mortgages were funded with bank deposits -it was nearly impossible to obtain one -since banks were, in essence funding long term assets (mortgages) with short term liabilities (deposits) they were extremely reluctant to originate mortgages. Banks and thrifts that were not so prudent ending up insolvent, due to their mismatched funding processes.
FanniMae and FreddieMac were created to provide mortgage lenders with an outlet for their mortgage production. Instead of retaining the assets on their books, they sold them to Fannie and Freddie -neither of which turned a profit (in fact Fannie was losing a million dollars a
day) who in turn, kept them on their respective balance sheet and subjecting them to the same loss-producing short term/long term mismatch.
It wasn't until both GSEs adopted securitization as a way to increase the liquidity and move the mortgages off their balance sheets, that mortgage credit became more easily available.
Granted, mortgage lenders, borrowers and investment bankers pushed the envelope and no doubt their aggressiveness contributed to the current mess we are all in -but don't blame securitization -blame something that has been around much,much longer -greed!