| Mortgage-backed are commonly seen as a low risk and high earnings type of loan among the credit assets of commercial banks as a certain amount of interest and principle can be recovered each month that makes cash flow stable and that there is comparatively low risks in issuing these types of loans to individuals that use the houses they are paying off in installments as a loan guarantees. Nonetheless, mortgage-backed still have some existing defects with the security, profitability and liquidity of modern commercial banks are looked at:One of the defects is that the capital that the bank gives to the mortgager is a liability of the bank to the depositors. The term of the deposit is usually relatively short while the period of repayment for the mortgage loan is rather long which leads to mismatches in the long-term assets and short-term debts of the bank and therefore the bank is incapable of dissolving the risks brought by the indeterminates of the future. A second defect is that the liquidity and term of the assets take on a change in a negative direction, that is the longer the term the lower the liquidity is. The characteristics of home mortgages themselves determines that there will be poor liquidity of the assets and it is because of this that at present every bank closely restricts the term of the loan. A third defect is that there are large risks because the mortgage loan is a very long-term creditor's asset and the bank is faced with huge risks in the interest rates. In addition, credit risks will occurwhen the client losses their ability to repay the loan for any reason or when the client feels that the benefits of breaching the contract outweigh the losses and the bank, as the operator of the financial products as its main business, will promptly recover the mortgaged items. However, how to deal with bad assets remains a headache to many banks.The securitization of bank assets is one of the most important innovations in the modern financial market and the securitization of home loans is an important component of that innovation. It indicates that financial organizations (mainly commercial banks) take the poor liquidity but good prospects in future cash earning of the home mortgage collections and turn them into secured loan groups and then take these assets sales and give them to a specific strong and credible organization, namely a SPV (Special Purpose 'Vehicle, to be used by a special purpose organization). The latter will conduct credit upgrading, select a securities company, issue stocks and list on the market. The commercial bank can revitalize stock assets, increase the number of financing channels, decrease the asset-liability ratio, raise the rate of capital sufficiency and have a close relationship to the capital market through the securitization of home loans. Investors can gain a rather high return on their investment, reduce the investment risks, improve their own quality of investment and expand into the investment field.The securitization of mortgage-backed in America and Europe began in the 1970s and is currently pretty much consummated and well developed while China is merely in the discussion and research phase. Home financing began in China in 1988. In 1998, the People's Bank of China issued the Administrative Law of Individual Housing Loans and allowed commercial banks to open individual housing secured loans, extend the loan term, which marked a new phase in the development of home financing in China. After this, the scale of granting home mortgages rapidly widened and the development was swift as by there year 2000, the balance of home loans at the China Construction Bank and the Industrial and Commercial Bank of China broke through RMB 100 billion Yuan, of which,individual home mortgages became the most important growth point for credit in the real estate industry. In September of 2000, China Construction Bank and the Industrial and Commercial Bank of China were formally approved by the central bank to become experimental units for home loan securitization. In...
|
PDF Full Text Request