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The Handbook of Mortgage-Backed Securities7th Edition$
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Frank J. Fabozzi

Print publication date: 2016

Print ISBN-13: 9780198785774

Published to Oxford Scholarship Online: October 2016

DOI: 10.1093/acprof:oso/9780198785774.001.0001

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Lessons of the Financial Crisis for Private- Label MBS

Lessons of the Financial Crisis for Private- Label MBS

(p.401) Chapter 19 Lessons of the Financial Crisis for Private- Label MBS
The Handbook of Mortgage-Backed Securities

Mark Adelson

Oxford University Press

This chapter discusses the lessons of the 2008 financial crisis for private-label mortgage-based securities (MBS). It considers both what happened in the general economy and evolution of the mortgage sector from the mid-2000s housing bubble, though the crisis, and into its aftermath. The chapter also highlights the importance of loan underwriting and discusses other key lessons to be learned from the crisis. Mortgage loan origination practices deteriorated markedly in the years leading up to the financial crisis. Underwriting guidelines became increasingly lax. However, a far bigger issue was the failure by many lenders to even follow their guidelines. The deterioration of origination practices helped mortgage loan origination volumes remain high following their cyclical peak in 2003. Structured finance collateralized obligations (SF-CDOs) became major buyers of the subordinate tranches of private-label MBS and influenced how the capital markets mispriced mortgage credit risk, which led to riskier loans.

Keywords:   2008 financial crisis, private-label mortgage-based securities, mortgage sector, mid-2000s housing bubble, loan underwriting, mortgage loan origination practices, structured finance CDOs, credit risk

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