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30 pages, 1941 KB

Open AccessFeature PaperArticle

Does Government-Sponsored Mortgage Securitization Mitigate or Aggravate Financial Crises?

by Wayne Passmore and Roger W. Sparks

Int. J. Financial Stud. 2026, 14(7), 167; https://doi.org/10.3390/ijfs14070167 - 1 Jul 2026

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This paper analyzes a model of the mortgage market, allowing for scenarios with and without government-sponsored mortgage securitization. Conventional wisdom says that securitization, by fostering diversification and creating a “safe” asset in the form of a mortgage-backed security (MBS), will reduce risk and [...] Read more.

This paper analyzes a model of the mortgage market, allowing for scenarios with and without government-sponsored mortgage securitization. Conventional wisdom says that securitization, by fostering diversification and creating a “safe” asset in the form of a mortgage-backed security (MBS), will reduce risk and enhance liquidity, thereby abating financial crises. Our contribution is to examine this claim by imbedding the mortgage market with a sequential strategic game played between the securitizer and banks. In this setting, adverse selection arises from the securitizer’s first-mover advantage rather than from informational asymmetries. In the model, the securitizer chooses the MBS contract terms, including the guaranteed rate and the criterion that qualifies a mortgage for securitization. Banks respond by selecting which qualifying mortgages to exchange for the MBS. Our analysis yields a central result: within this framework, government-sponsored securitization is, somewhat counterintuitively, more likely to exacerbate the severity and frequency of financial crises. This outcome arises in particular when mortgage demand is sufficiently low that originators optimally choose not to retain any higher-risk mortgages on their balance sheets. Full article

(This article belongs to the Topic The Future of Banking and Financial Risk Management)

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1 pages, 128 KB

Open AccessCorrection

Correction: Zhang et al. Sustainable Construction and Financing—Asset-Backed Securitization of Expressway’s Usufruct with Redeemable Rights. Sustainability 2021, 13, 9113

by Qiming Zhang, Linda Yin-nor Tjia, Biyue Wang and Aksel Ersoy

Sustainability 2025, 17(11), 4979; https://doi.org/10.3390/su17114979 - 29 May 2025

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Abstract

The journal’s Editorial Office and Editorial Board are jointly issuing a resolution and update of the Academic Editor linked to this article [...] Full article

19 pages, 268 KB

Open AccessArticle

The Market’s View on Accounting Classifications for Asset Securitizations

by Minkwan Ahn

Int. J. Financial Stud. 2023, 11(3), 91; https://doi.org/10.3390/ijfs11030091 - 11 Jul 2023

Cited by 1 | Viewed by 2613

Abstract

Prior research has examined how investors view asset securitizations, and shows that investors treat securitizations as borrowings, even when GAAP treats them as sales. Upon the adoption of two new accounting standards relating to securitizations, some off-balance-sheet securitized assets were consolidated back onto [...] Read more.

Prior research has examined how investors view asset securitizations, and shows that investors treat securitizations as borrowings, even when GAAP treats them as sales. Upon the adoption of two new accounting standards relating to securitizations, some off-balance-sheet securitized assets were consolidated back onto firms’ balance sheets. This study investigated how investors viewed assets that firms consolidated under the new standards and those that firms left unconsolidated. I found that investors differentiated between these two types of securitizations, treating the consolidated assets as borrowings and the unconsolidated assets as sales. I conclude that the new accounting standards are more consistent with equity investors’ views of securitizations. I also found that, for the consolidated assets, investors did not distinguish between securitizations going through two different accounting structures. Lastly, this study provides evidence on one information channel that investors use to distinguish between securitizations that may have the economic substance of borrowings versus sales. Full article

14 pages, 667 KB

Open AccessArticle

Being Naked - et Quo hinc?: Developing a ‘Skin-in-the-Game’ Solution for Credit Default Swaps

by Shanuka Senarath, Pelma Rajapakse, Jan Job de Vries Robbé, Naveen Wickremeratne and Maduka Subasinghage

Int. J. Financial Stud. 2022, 10(4), 94; https://doi.org/10.3390/ijfs10040094 - 10 Oct 2022

Cited by 1 | Viewed by 2661

Abstract

A credit default swap (CDS) is a derivative financial instrument that provides insurance against credit risk. CDSs on subprime Asset Backed Securities (ABSs) paved the way for securitizers to hedge the credit risk of the underlying subprime loans during the onset of the [...] Read more.

A credit default swap (CDS) is a derivative financial instrument that provides insurance against credit risk. CDSs on subprime Asset Backed Securities (ABSs) paved the way for securitizers to hedge the credit risk of the underlying subprime loans during the onset of the Global Financial Crisis (GFC). Thus, mortgage originators were least concerned about the quality of loans they securitize since they could hedge the default risk via CDS, paving way to a moral hazard concern. We argue that the core issue pertaining to CDSs, moral hazards, remains unattended even after a decade since the GFC. This paper, utilizing a lexonomic approach embedded in the second-best efficiency criteria, examines the mechanism behind a CDS and develops a regulatory framework with the view of minimizing moral hazards associated with CDSs. Our analysis indicates that incorporating an ‘excess’ on CDSs may minimize moral hazards, since originators are compelled to bear part of the risk associated with assets they create. Full article

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17 pages, 2141 KB

Open AccessArticle

Sustainable Construction and Financing—Asset-Backed Securitization of Expressway’s Usufruct with Redeemable Rights

by Qiming Zhang, Linda Yin-nor Tjia, Biyue Wang and Aksel Ersoy

Sustainability 2021, 13(16), 9113; https://doi.org/10.3390/su13169113 - 14 Aug 2021

Cited by 4 | Viewed by 4031 | Correction

Abstract

Asset-backed securitization will greatly promote the sustainability of infrastructure construction and financing. However, there are quite limited researches conducted in this field. Given the project characteristics of infrastructure project securities, this paper proposes the issuance steps of redeemable asset-backed notes (ABN) based on [...] Read more.

Asset-backed securitization will greatly promote the sustainability of infrastructure construction and financing. However, there are quite limited researches conducted in this field. Given the project characteristics of infrastructure project securities, this paper proposes the issuance steps of redeemable asset-backed notes (ABN) based on the infrastructure project’s usufruct as the basic asset. Taking the expressway franchise as an example, the issuing scale and coupon rate of the redeemable ABN are determined by the expected cash flow of the expressway, the term structure of random interest rates, and the option-adjusted spread (OAS). In addition, this research analyzes the duration, convexity, and OAS. Full article

(This article belongs to the Special Issue Evaluating the Socioeconomic Impact of Infrastructure Investment in an Uncertain World)

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18 pages, 657 KB

Open AccessArticle

Determining Critical Success Factors for Public–Private Partnership Asset-Backed Securitization: A Structural Equation Modeling Approach

by Li Liu, Yubo Guo, Chuan Chen and Igor Martek

Buildings 2021, 11(5), 199; https://doi.org/10.3390/buildings11050199 - 9 May 2021

Cited by 14 | Viewed by 5976

Abstract

Public–private partnership (PPP) has been widely applied in China and many developing countries in the recent decade. As new PPP projects gradually enter the operational phase, the issue of refinancing becomes increasingly important. PPP–ABS plays an indispensable role in PPP project refinancing. The [...] Read more.

Public–private partnership (PPP) has been widely applied in China and many developing countries in the recent decade. As new PPP projects gradually enter the operational phase, the issue of refinancing becomes increasingly important. PPP–ABS plays an indispensable role in PPP project refinancing. The factors that promote the success of the emerging PPP–ABS in the China financial market need to be determined. To accomplish two objectives, namely, to identify critical success factors (CSFs) and to explore the relationship between these factors and the success of the PPP asset-backed securitization (PPP–ABS) of this research, methods such as a questionnaire survey and structural equation modeling (SEM) were conducted successively. Four success factors, including underlying asset quality (UAQ), original equity holder credit (OEHC), rationality of security design (RoSD) and maturity of relative institutions (MoRI), were identified in this study. Consequently, nineteen theoretical hypotheses were developed and tested. It is shown in the SEM approach that UAQ and OEHC positively influence the success of PPP–ABS, alongside issuance characteristics (IC) that mediate the relationship between the success of PPP–ABS and UAQ, RoSD and MoRI, respectively. This finding increased knowledge of PPP–ABS and how investors and government can benefit from it. Full article

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13 pages, 535 KB

Open AccessArticle

Optimal Form of Retention for Securitized Loans under Moral Hazard

by Georges Dionne and Sara Malekan

Risks 2017, 5(4), 55; https://doi.org/10.3390/risks5040055 - 21 Oct 2017

Cited by 1 | Viewed by 4347

Abstract

We address the moral hazard problem of securitization using a principal-agent model where the investor is the principal and the lender is the agent. Our model considers structured asset-backed securitization with a credit enhancement (tranching) procedure. We assume that the originator can affect [...] Read more.

We address the moral hazard problem of securitization using a principal-agent model where the investor is the principal and the lender is the agent. Our model considers structured asset-backed securitization with a credit enhancement (tranching) procedure. We assume that the originator can affect the default probability and the conditional loss distribution. We show that the optimal form of retention must be proportional to the pool default loss even in the absence of systemic risk when the originator can affect the conditional loss given default rate, yet the current regulations propose a constant retention rate. Full article

(This article belongs to the Special Issue Information and market efficiency)

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18 pages, 238 KB

Open AccessFeature PaperArticle

Investing in College Education: Debtors, Bettors, Lenders, Brokers

by Ellen Messer-Davidow

Humanities 2017, 6(2), 20; https://doi.org/10.3390/h6020020 - 10 Apr 2017

Cited by 1 | Viewed by 5611

Abstract

Federal and private lenders have issued college student loans, now rising above $1.3 trillion nationwide and, to gain revenues for continued lending, sell them to securitizers who in turn bundle them into asset-backed securities. This paper argues that the magnitude of debt, high [...] Read more.

Federal and private lenders have issued college student loans, now rising above $1.3 trillion nationwide and, to gain revenues for continued lending, sell them to securitizers who in turn bundle them into asset-backed securities. This paper argues that the magnitude of debt, high rates of default and forgiveness, and uncertain long-term repayment by borrowers facing lackluster job opportunities replicate the techniques of neoliberal financialization (subprime mortgages, securitization, overstocked housing market) that triggered the 2008 economic meltdown. Full article

(This article belongs to the Special Issue Saving the Humanities from the Neoliberal University)

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