The Future of Securitization

IDD Magazine (05/26/08); Rozens, Aleksandrs
Although securitization has taken a hit due to the credit crisis and concerns about the quality of the underlying debt, most experts believe it will not disappear because the domestic and global economies are now dependent on the repackaging of various forms of debt into bonds to spread out risk. According to JG Wentworth CFO John Calamari, saying that securitization will fade away "would be equal to saying there won't be any banks anymore." Asset-backed bond issuance hit $1.3 trillion in 2006 from $1.2 billion in 1985 but fell to $901 billion last year in response to the credit crisis. Mortgage bond issuance has declined due to concerns about falling home values and rising foreclosures, but experts point out that lending has not dried up entirely; insurers are holding commercial real estate mortgages in their portfolios, and lenders of jumbo mortgages are retaining those products as well. Deals backed by student loans have dropped, but $40.5 billion in credit card deals and $23.1 billion in auto lease-backed deals have been issued since the start of the year. Still, in the mortgage arena, Goldman Sachs estimates that credit losses from the subprime mortgage crisis could total $400 billion--which could prompt a $2 trillion drop in lending that would hit the economy hard.