1. SECURITIZATION OF LOAN –RECIPE FOR DISASTER GROUP MEMBERS VIJAYAKUMAR SUNIL VIJAYALAXMI AIYAPPA

2. SECURITIZATION Securitization is a structured finance process that involves pooling and repackaging of cash-flow-producing financial assets into securities, which are then sold to investors. The term "securitization" is derived from the fact that the form of financial instruments used to obtain funds from the investors are securities

3. Cont… Securitization often utilizes a special purpose vehicle (SPV), alternatively known as a special purpose entity (SPE) or special purpose company (SPC), in order to reduce the risk of bankruptcy and thereby obtain lower interest rates from potential lenders.

6. Price investors offer for a loan(or pool of loans) must depend only on the associated hard information.

7. Soft information and perforce uncontractible.

8. Moral hazard of the problem for the lender

10. Possible failure to account for change in relationship between observable borrower characteristics and default likelihood caused by a fundamental change in lender behavior

13. Starting in Wall Street, others followed quickly. With soaring profits, all wanted in, even if it went beyond their area of expertise.

15. Some banks loaned even more to have an excuse to securitize those loans.

16. Some banks evens started to buy securities from others.

19. Lending slowed

20. Assets were losing in value so lenders wanted to take their money back.

21. Investment banks had little in deposits; no secure retail funding, so some collapsed quickly and dramatically.

23. The de-leveraging of US households has just began. Purging of excess mortgage debt is the first step, credit card and auto loans are next to go.

24. The global rebalancing process has barely started.

26. How long will U.S. government retain ownership?

27. A short-term fix followed by a quick return to private ownership. Or long-term ownership?