Research On The Risk Management Of Mortgage Backed Securitization In China Based On Case Study Of "Jianyuan2007-1MBS"

Historically unprecedented reform and innovation have taken place in the global market in nearly half a century. The asset securitization, born in1970s, has significant influence on the development of the financial market, financial institutions and related industrial entities. Moreover, it is an outstanding innovation of the financial field in the word in1970. Asset securitization refers to is a way of financing by issuing marketable securities, which is based on a specific portfolio or a specific cash flow. Traditional securities are based on the enterprise which is often lack of liquidity, while the asset securitization is based on a specific pool of assets. The asset securitization can improve the efficiency of the assets operation, optimize the allocation of resources, and reduce the operating costs of the macroeconomic. All in all, the asset securitization has numerous positive effects. Mortgage backed securities, the first form of asset securitization, is quite preferred by the financial institutions of all the word.Mortgage backed securitization is a form of financing, in which the illiquid original home mortgages is re-composed to form new collateral portfolio and then issued by SPV in the capital market after credit enhancement.As a production of the pressure of the external environment and internal drive mechanism at forty years ago, the mortgage backed securitization, is originated from American and has developed at a rapid speed. According to the data provided by the Raymond Brothers, the market share of the mortgage backed securities in U.S. is33.44%, which is close to the national debt and higher than the corporate bonds (20.81%).The balance of mortgage backed securities is about$30000billion which is more than the market value of the stock of the nation. In1986and1987,the mortgage backed securitization in Europe was issued at the number of$1.7billion,but was up to$12billion in1994. In2005, Australia issued over10billion AUD of mortgage backed securities, nearly one-third of the securitization market in Macao. After the Asian financial crisis, many Asian countries and regions introduced the mortgage backed securitization in order to relieve the liquidity troubled. In1997, the Hong Kong Mortgage Corporation was Limited. Then3billion Hong Kong dollars of mortgage-backed securities was issued in the second year. As a mature financial instrument in other foreign countries, the theoretical and practical experience of mortgage backed securitization are important to the development of China’s real estate market, financial market and capital market.Since1998, when China adopted the reform of the housing system, the domestic real estate market has developed rapidly. From1998to2010, the number of commercial housing sales increased from￥251.3billion to￥5.2trillion, an increase of20times, and the commodity housing sales area grew to1.04billion square meters from120million square meters, an increase of7.6times. Although residents’ income in China has been greatly improved with the development of the national economy, the vast majority of residents still do not have the ability to pay off in one-time when they buy new housings. So they need to depend on housing mortgage loans. Housing mortgage loans, as a more high-quality asset, is preferred by the majority of commercial banks. The market of the housing mortgage loan in China was developed rapidly from1997to2005, with a change of￥190million to￥1.843trillion. Although the housing mortgage loans are high-quality assets for the loan period is much long (usually more than10years), they are always at the risk of lacking mobility. With the continuous development and expansion of the primary market of home mortgages, the appearance of commercial banks’ trouble of "short-deposit but long-loan" and the gradual improvement of capital markets, carrying out the mortgage backed securitization in our country is very necessary and feasible.In2005, China Construction Bank issued the first mortgage backed securities-"Jianyuan2005-1MBS", which marked the officially operation of China’s mortgage backed securitization. After two years, China Construction Bank re-issued the second mortgage backed securities in the2007-"Jianyuan2007-1MBS",which marked that the pilot work of China’s mortgage backed securitization has entered a new stage. The two mortgage backed securities provide practical experience to the integrated development of China’s mortgage backed securitization. The launch of mortgage backed securities will be conducive to promote the development of China’s housing industry, deepen real estate finance, optimize the risk structure of commercial banks, create a new growth point of profit, and promote the development of China’s capital market to the new direction of the depth and breadth.Contradictions are universal, and financial innovation is a double-edged sword. Mortgage backed securitization can bring out a range of benefits, but there are also certain risks. In sight of the subprime mortgage crisis in the United States, although the origin of the crisis is not mortgage backed securitization itself, it was responsible to the crisis because of the lack of effective supervision and risk control.Since our country has launched the pilot project of mortgage-backed securities, we should take precautions and do our utmost to control all aspects of risk, in order to ensure the smooth and healthy development of China’s mortgage backed securitization.Domestic academic researches are mainly concerned with the analysis of the feasibility, necessity, obstacles and the appropriate model of mortgage backed securitization before the pilot work carried out. In2005, as China formally issued mortgage-backed securities, many scholars began to focus on the the risks of mortgage backed securitization, but their work were mainly based on the development experience and lessons of overseas mortgage-backed securities, and rarely integrated China’s actual situation to analyze the specificity of risk at China’s mortgage backed securitization. According to the particularity of the contradiction, the basic conditions of China are quite different from the Western developed countries. Based on learning from foreign experience, analyzing the special risks with our own actual situation is particularly necessary.On the basis of theoretical research, the paper focuses on the empirical analysis of risks of "Jianyuan2007-1MBS", and aims to propose some constructive measures, in China’s particular situation.In this paper, the author uses the logical study method and combines words with graphics on the base of the analysis of the underlying concepts and principles as far as possible to carry out a thorough exposition about the theory of mortgage backed securitization. In the "Jianyuan2007-1MBS" case analysis, The author use the data collection method and qualitative research method, by identifying a series of related data through the issue illustration and dozens of reports by trust institution, to describe the situation of "Jianyuan2007-1MBS".In analyzing the factors of risk, the paper focuses on the particularity of the risk at China’s mortgage backed securitization except for foreign experience.In the empirical analysis about prepayment risks of "Jianyuan2007-1MBS", the paper selects a sample, of which the study period is from January,2010to November,2012. First, the author calculates the prepayment rates of each month, and then finds out the growth of per-residents’ disposable income (excluding the effects of inflation),the increasing range of price index in housing sales and the above5-years benchmark interest rate of housing mortgage loans in the relevant statistics website, finally establishes a multiple regression model and revises it constantly.The paper is structured as follows:Chapter Ⅰ:Introduction. This chapter includes the research background, significance of the research, literature review, primary ideas, methods, framework, innovation and shortcomings.Chapter Ⅱ:Related theory description. From the view of content, participators, operational processes, operational principle and significance, the theory about mortgage backed securitization is conducted from all-around.Chapter Ⅲ:Analysis of the development of mortgage-backed securitization in China. First the author analyzes the conditions of our country to carry out the mortgage backed securitization, then introduces the basic situation of "Jianyuan2007-1MBS" and finally summarizes problems and obstaclesChapter Ⅳ:Analysis of the risks of mortgage backed securitization from the view of theory. The author describes the main influential factors and measurement methods of prepayment risk and default risk in details. In the analysis of influential factors, China’s actual condition is focused.Chapter Ⅴ:Empirical research about the risks of "Jianyuan2007-1MBS".ChapterⅥ:The measures about risk management.The innovations of this paper are that:First, the paper introduces some virtual variables in empirical research to improve the accuracy of model. Second, the analysis about prepayment risk and default risk of "Jianyuan2007-1MBS" is very comprehensive.The shortcomings of this paper are that:First, because the mortgage backed securitization in China has just be carried out for a short time and still not experienced a full repayment cycle, so the data from selected sample is lack of stability and representative, resulting in a model with little accuracy. Second, the paper only analyzes some related indicators about default risk, but not builds a model to predict future default rates.