The Risk And Risk Avoiding Of MBS For Commercial Bank In China

Mortgage Based Securitization (MBS) is a new financing mode developing in recent years, it's the most important innovation in finance region in recent years. MBS is able to convert the realty investment which is able to bring stable income to be the negotiable securities in finance market. Its functions contains:activating the finance asset, improving the quality of the Mortgage enhancing the utilizing rate of the asset and advancing the ability of the defending the risk for the bank. The most important characteristic is converting the stagnant and unacceptive asset to be the fluid and acceptive negotiable securities in the market. Its essence is the progress of converting the Mortgage to be the transferable implement. In another word, it gathers the credit asset, and then converts it to be the securities, and then sell them to the investor.In recent years, Mortgage is developing fleetly. Before the finance crisis, it grows for 40 to 50 percents per year. "Jianyuan2005-1" issued by China Construction Bank is the first attempt in MBS in China. It improves the research in MBS, Applying this new finance utility has the active effect for the development of the economic in China. In another aspect, the probability of the risk is also increasing with the application of MBS. So the research of the risk of MBS is an important subject. In this paper, I focus on the risk caused by refunding ahead of schedule, the risk of the interest rate and the risk of credit, and make the deeply analysis.The progress of MBS is:mortgage lending, the formation of SPV, purchasing mortgage loans, credit enhancement, MBS securities, ratings and distribution, scheduled debt service, and pay. The participants of the mortgage-backed securities which includes borrower, originator, SPV, service agencies, entrusted management institutions, credit enhancement institutions, credit rating agencies, underwriting agencies, investors and the related support systems. The core principle of MBS is:" cash flow analysis of the underlying asset", and the three basic principles is:"asset reorganization", "risk isolation", "credit enhancement". They constitute the theoretical basis of this article.The existence of a variety of risks leads to cash flow instability and brings difficulty to the progress of the evaluation of MBS. In China, the housing reformation has just been completed, some residents the home equity of some residents is blurred, property registration and mortgage system is not yet perfect, personal credit system is needed to be established, so the quality of housing mortgage loans have not been fully guaranteed. Poor quality of loans will inevitably result in increased management costs and increase the possibility of losses. In addition to the three major risks (prepayment risk, interest rate risk, credit risk), the risk caused by the operation of MBS is also important, these risks (include the risk of a true sale of the securities pricing, the risk of distribution and circulation, management risk, inflation risk, and policy risks, such risks is also outlined in this chapter.As property prices in recent years in the United States, and prosperous real estate market makes the lending institutions increasing the supply of subprime mortgage loans in order to blind pursuit of high profit margins and even ignored the hidden risks of subprime mortgages. The sub-prime crisis breaking out clearly shows that the MBS in USA also has many problems remained, there are some flaws in the participants of MBS-chain, so the risk original existed in the subprime mortgage market extended to the capital markets, global financial markets. MBS was originally able to transfer and disperse the risk of mortgage, to develop the real estate market and to meet the housing needs of people, but unexpectedly led to a financial market systemic risk and crises. For our country, whose real estate market is as hot as that in the US. Summing up the experience and lessons of MBS in the overseas is very important.At the last part of this paper. I put forward my own specific measures and suggestions. I also prospected the large area application in Securitization in China.In summary, the article mainly focus on the three major risk in the process of securitization and use the method of empirical analysis to points out the three major risks in the process of securitization, at last I gave some suggestions on how to avoid the risks.