The Collapse Of The Subprime Mortgage Market Causing A...

The collapse of the subprime mortgage market causing a global financial crisis (GFC) in 2007, has given the concept of securitisation a bad name. Securitisation is the process of conversion of receivables and cash flow generated from a collection or pool of financial assets into the marketable securities. Any asset that generates a cash flow can be securitised, which are then sold to capital market investors. Asset securitisation is the process whereby interests in loans and receivables are packaged and sold in the form of an asset-backed security (ABS). An ABS is the bond or notes backed by some financial assets. These assets consist of receivables such as residential and commercial mortgage loans, automobile loans, and credit card financing. Mortgage-backed securities (MBS) are bonds that are backed by pools of mortgage loans. Examples include mortgage papers, house papers, and land and property papers. Thus in-turn, reflective of the underlying assets in the security are these two terms. Additionally, securitisation is a method of financing assets, to serve as the main source of payment to investors, it usually depends on cash flow generated from principle and interest repayments. Securitisation is one of the most fundamental and complex concepts in the world of finance. The non-existing industry began in the 1970s when home mortgages were pooled by U.S. government-backed agencies. Ten years later, financial institutions and businesses from all different aspects usedShow MoreRelatedThe Global Financial Crisis Of 2007-20081123 Words   |  5 PagesThe Global Financial Crisis of 2007-2008 is the worst financial crisis since the 1930’s The Great Depression (Reuters, 2009). Even if bailouts of banks by national governments prevented the collapse of major financial institutions, worldwide stock markets continued to drop. 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