Case ID: 1
Solution ID: 37114
Words: 1633
Price $ 45

Securitization and Mortgage Markets Case Solution

Abstract

The originator of any vehicle advance is the organization that makes an extraordinary reason vehicle for issuance of advantage supported securities. In the present situation, the important fundamental organization is 'Volkswagen renting GmbH'. Issuing resource sponsored credits is not another or novel idea for Volkswagen. Till date, it has issued 25 publically evaluated German auto rent exchanges. Since it has issued a colossal measure of high appraised resource sponsored securities, along these lines, because of the uncommon reputation, the benefit nature of this advantage upheld security issue is viewed as sheltered and high evaluated.

All this is working to create a domino effect throughout the mortgage and the US economy. Sub-prime borrowers who have experienced the foreclosures have had a personal and financial setback. Losing their credit rating reduced their purchase power and also their financial status as they strive to downsize with a low credit rating. This vicious cycle will make it hard to rent for those who are unemployed as they may be pushed into temporary or permanent poverty. 


The whole mortgage market is caught in a "web" made all the more critical due to the current state of the US economy, however;
Subprime borrowers, with low rates of 7% to 8%, will see rates reset at numbers like 11%. Prime borrowers are seeing rates jump to 20% and more causing them to come near to defaulting on their loans (Morrissey, 2008).

 Buyers are being cautious because foreclosures mean special assessments will be imposed on the areas raising the cost of ownership (Opdyke, 2008). With prices so low there are buyers in the market but not enough to turn the picture around for the mortgage industry; the prices have not yet hit rock bottom and that is the fear, where will the bottom be?

The Bigger Picture:

 The whole mortgage market case is caught in a vicious cycle made all the more critical due to the current state of the US economy.

The housing epidemic created a false market boom that drove prices up as consumer demands grew. Buying a house was no longer a luxury; it was a means to an end, for interest rates to be refinanced year after year.

The Bigger Picture:

The economy itself is too weak to work through the crisis. The unemployment rate is too low and there are no buffers to support the downward spiral. At the moment a government intervention is not expected as there is no one solution to the problem. However, the failing economy is not helping. Stocks are going down, equities falling and investments taking a downtrend that is creating a whirlpool of another crisis. This is creating a situation the market cannot handle. The typical loan no longer involves the primary lender rather; loans have been tied into securities sold to investors all over the world. With the failing economy, mortgage lenders and banks are finding it hard to find the cash to support the foreclosures. With the low house demand and the growing defaults, companies like American Home Mortgage Investment Corporation and Delta Financial Corporation filed for Chapter 11 bankruptcy protection. Bigger banks are suffering losses as they write down their losses with even a company like Merrill Lynch posting its largest loss in 94 years. What affects the mortgage crisis will have and how deep the effect on the economy depends on where the housing prices go in the next couple of quarters, what sore of unemployment rate the nation sees, the rate of foreclosures and how the crisis falls into other parts of the mortgage and credit sector. The government can not use its money to "bail out" foreclosures by subsidizing refinanced mortgages for this will create an option for people to do the same in the future and lenders will create a cycle allowing the weakest buyers to get the highest interest rates either for this just works to prevent one strata of society to grow economically thus stagnating the economy.

 Stocks are going down, equities falling and investments taking a downtrend that is creating a whirlpool of another crisis. This is creating a situation the market cannot handle. The typical loan no longer involves the primary lender rather; loans have been tied into securities sold to investors all over the world.


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Excel Calculations

Questions Covered

1- The Assets, Research the originator, seller, and loan pool.

2- Research the issue, its trading, and its pricing. Document your answers with suitable screenshots from Bloomberg whenever appropriate.

3- The crucial factor in an issue's reception and pricing are the rating studies.