Subprime Mortgage Lending

Go to the Federal Reserve Bank of San Francisco's website, http://www.frbsf.org/ publications/economics/letter/2001/el2001-38.pdf. to access Elizabeth Laderman's article "Subprime Mortgage Lending and the Capital Markets." After reading this article, answer the following questions:

1. What is subprime lending?

2. Describe the growth characteristics of this market. What role has securitization played in development of subprime lending?

the borrower defaults on the mortgage. This guarantee increases the marketability of the pass-through. Thus, investors can buy and sell GNMA securities like any other bond.

Other mortgage pass-throughs have since become popular. These are sponsored by FNMA (Fannie Mae) and FHLMC (Freddie Mac). By 2001, more than $2.5 trillion of outstanding mortgages were securitized into mortgage-backed securities, making the mortgage-backed securities market larger than the $2.4 trillion corporate bond market and nearly the size of the $3 trillion market in Treasury securities. Figure 2.8 illustrates the explosive growth of these securities since 1979.

The success of mortgage-backed pass-throughs has encouraged the introduction of pass-through securities backed by other assets. These "asset-backed" securities have grown rapidly, from a level of about $316 billion in 1995 to $1,202 billion in 2001.

Lessons From The Intelligent Investor

Lessons From The Intelligent Investor

If you're like a lot of people watching the recession unfold, you have likely started to look at your finances under a microscope. Perhaps you have started saving the annual savings rate by people has started to recover a bit.

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