The evolutions of the trituration

1 ° Public trituration

The effects of public mortgage trituration are no longer as easy to follow as they were before. GSEs Fannie Mae and Freddie Mac after their (re) nationalization of autumn 2008 no longer appear in the accounts of the Federal Reserve as a securitization factor. Their securitization, still known as the Mortgage Securities Backed Pool, is no longer recorded by the FED in its Flow of Funds Accounts. We will simply recall that 20% of the residential debts of these two companies were held in portfolio and 80% securitized. For Ginnie Mae, this percentage is 50-50%. These remarks are enough to give a comment on the evolutions of the trituration of the three big American GSE.

A first remark can be made. Since the 2008 crisis, historical GSEs have experienced a virtual stagnation of their credit refinancing activity: Fannie Mae’s total assets increased by $ 107 billion between 2008 and 2010 T-2 while total assets Freddie Mac was up $ 32 billion. The contrast with 2007 is striking: between 2007 and 2008, the activities of these two major mortgage refinancing companies continued at a high level despite the crisis. This is to say how much the Bush administration has tried to pursue a policy of developing mortgage credit against all caution in order to postpone the collapse of the market as much as possible. It ended up on the eve of the Republicans’ loss of power, that is, two months too early.

Ginnie Mae is the company that took over from Fannie Mae and Freddie Mac. Small GSE it has more than doubled its activity since 2007 and became the keystone of the support of the US real estate by the public authorities. The weakness of its securitization (50% of its assets) makes it possible to take stock of the evolutions of public trituration in the USA. By broadly counting, Ginnie Mae’s public securitization may have reached $ 400bn between 2008 and the 2010 T-2.

We have listed the purchases of debt securities of agencies and GSE by the FED to emphasize that it is these purchases that have avoided a bond Crash on the securitization products of GSE Fannie Mae and Freddie Mac. At the end of June, the FED held about 20% of the debt of the agencies and RMBS of the GSEs. This stock holding has been extended to Ginnie Mae to encourage institutional investors to continue buying RMBS from GSEs and to support residential real estate suffering from its excesses. With the $ 400 billion Treasury guarantee given to Freddie Mac and Fannie Mae, the Fed has been the mainstay of the rescue of public real estate financing in the US.

The public securitization of residential real estate debt and the accelerated development of a single mortgage refinancing company, Ginnie Mae, have helped keep the real estate market afloat without really getting it back on track because of the economy and credit degraded. Public securitization was thus maintained.

2 ° Private titration

Private securitization is carried out by Assets Backed Securities Issuers or issuers of asset-backed securitized debt. This securitization takes various forms depending on the nature of the receivables and counterparties of mortgages: House, apartment, business premises, durable goods for consumer credit, merchandise in commercial paper. The instruments of the titration of ABS derived are the Conduits, the Special Vehicle Purposes (SPV) …

The total of ABS securitization (red) shows that US securitization collapsed in 30 months due to the destruction of receivables or the contraction of securitization activities: $ 1483 billion disappeared ABS Issuers ducts.

The contraction in private securitization primarily concerned homes ($ -771bn), while the contraction in apartment vacancy remained modest (- $ 20bn). The slowdown in economic activity and the economic difficulties hit the trituration of premises to trade (dark green -95 billion). Unemployment and wage losses as a result of the rise in forced working hours led to a sharp drop in securitized consumer loans (light green) of $ 540 billion.

In short, the securitization activities supported by individual consumer and real estate loans have plunged private securitization. The fall in securitization as a result of corporate difficulties is much less sensitive. The securitization of commercial paper (other) and commercial loans (dark green) represent a contraction of $ 152 billion of ABS Issuers’ business.

The examination of the flows makes it possible to bring some nuances to the analyzes which we have just conducted. The decline in private securitization slowed down in Q1 and Q2 2010. This decline is explained by a slowdown in the contraction in mortgage securitization of homes and, to a lesser extent, in apartments. On the other hand, the trend of commercial credits is down and the same is true for consumer credit. It also seems that the contraction of commercial bills is slowed down.

Joe Gray

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