Author: Susan M. Wachter
-
-
-
The Governance & Culture Reform hub is designed to foster discussion about corporate governance and the reform of culture and behavior in the financial services industry.
Need to file a report with the New York Fed? Here are all of the forms, instructions and other information related to regulatory and statistical reporting in one spot.
The New York Fed works to protect consumers as well as provides information and resources on how to avoid and report specific scams.
-
-
-
The New York Fed provides a wide range of payment services for financial institutions and the U.S. government.
The New York Fed offers the Central Banking Seminar and several specialized courses for central bankers and financial supervisors.
The New York Fed has been working with tri-party repo market participants to make changes to improve the resiliency of the market to financial stress.
-
-
-
We are connecting emerging solutions with funding in three areas—health, household financial stability, and climate—to improve life for underserved communities. Learn more by reading our strategy.
The Economic Inequality & Equitable Growth hub is a collection of research, analysis and convenings to help better understand economic inequality.
The Governance & Culture Reform hub is designed to foster discussion about corporate governance and the reform of culture and behavior in the financial services industry.
-
Economic Policy Review
Credit Risk Transfer, Informed Markets, and Securitization
Volume 24, Number 3
December 2018
December 2018
JEL classification: H81, G28, G01, G14
Mortgage-backed securities (MBS) funded the U.S. housing bubble, while the ensuing bust resulted in systemic risk and the global financial crisis of 2007-09. In the run-up to the crisis, MBS pricing failed to reveal the growing credit risk. This article draws lessons from this failure that could inform the use of credit risk transfers (CRTs) to price credit risk. The author concludes that the CRT market, as currently constituted, could have appropriately priced and revealed credit risk during the bubble years because it met three key requirements: 1) transparency, through the full provision of information on the mortgages underlying the CRTs and the standardization of mortgages that arose from the predominance of Fannie Mae, Freddie Mac, and Ginnie Mae in the mortgage market; 2) open pricing in liquid markets; and 3) no counterparty risk. The author also describes areas of GSE reform that could either impair or enhance the ability of the CRT market to limit credit risk going forward, including the possible presence of multiple guarantors and the use of a common securitization platform.
Author Disclosure Statement(s)
Susan M. Wachter
The author declares that she has no relevant or material financial interests that relate to the research described in this paper.
The author declares that she has no relevant or material financial interests that relate to the research described in this paper.
By continuing to use our site, you agree to our Terms of Use and Privacy Statement. You can learn more about how we use cookies by reviewing our Privacy Statement. 
