Securitization and the Modern Home Mortgage

1. Securitization and the
Modern Home Mortgage
By: Dirk Coetzer

2. Securitization and the Modern Home Mortgage
Dirk Coetzer is managing director of ICON Capital Sarl, a securitization firm based in Luxembourg.
Dirk Coetzer previously served as director of trade finance Firminy Inc. in Panama. A securitization
firm buys contractual debt and converts it into securities.

3. Securitization and the Modern Home Mortgage
Government National Mortgage Association (GNMA) is a facilitator in the securitization of financing
mortgages, including mortgage-backed securities (MBSs). Securitization is the selling of mortgages to
be converted into bonds, which are then sold as securities. Securitization is the process by which a
home loan is now sold to a third-party investor, something unheard of 30 years ago.

4. Securitization and the Modern Home Mortgage
Three decades ago, purchasing a home involved only one loan originator, a local lending institution
like a bank. The potential homeowner applied to the bank for a mortgage, the bank approved the
application, and the homeowner paid the bank until the mortgage was paid off. Today, a home loan
has an originator, a third-party facilitator like GNMA, and then another party may buy the loan for
securitization. The securitization process converts the mortgage into a MBS bond. The payments on
the mortgage are used to pay the interest on the MBSs.

5. Securitization and the Modern Home Mortgage
MBSs are sold as mutual funds and as bonds. The financing trail can continue into the formation of
collateralized debt obligations and structured investment vehicles. These steps create a large pool of
investors in mortgage funding, decreasing the risk for the mortgage holders if a buyer defaults on the
loan.