Boston, MA, May 19, 2008
– A new report from Aite Group, LLC provides an overview of fixed-income securitization in order
to impart an understanding of how the process devolved into the current mortgage crisis. The report sheds
light on collateralized debt obligations (CDOs) secured by asset-backed securities (ABS), and examines the
history, the purpose and the process of securitization and resecuritization.
According to the report, securitization - the financial activity of packaging loans and
bonds to create tradeable securities - will survive the current mortgage crisis, but the arbitrage ABS
CDO business will not. Securitization has been around for years, and has served well the interests of
both borrowers and lenders. However, arbitrage ABS CDOs have morphed securitization, a fundamental activity
in today's global financial markets, into hard-to-value assets. The report examines collateral credit
issues, as well as security structure and the key market participants of this arcane fixed-income space.
It also discusses how these various components ultimately led to today's securitization endgame.
"Securitization is not going away, as GNMA and GSE mortgages and other consumer debt
are still being originated, but the arbitrage ABS CDO business model as we know it will cease to be for
the foreseeable future," says John Jay,
senior analyst with Aite Group and author of this report. "As capital has become more dear, credit rationing,
particularly applied to mortgages, has become de rigueur at lending institutions. With less collateral to securitize
into CDOs and no ready buyers in sight, ABS CDO issuance has virtually disappeared."
This 25-page Impact Report contains eight figures and one table. Clients of Aite Group's Institutional
Securities & Investments service can download the report by clicking on the icon to the
right.
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