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The optimal model for securitization of mortgage loans granted to entities operating in the banking sector

Vol. 18, Iss. 11, NOVEMBER 2019

Received: 3 October 2019

Received in revised form: 18 October 2019

Accepted: 1 November 2019

Available online: 29 November 2019

Subject Heading: Banking

JEL Classification: G21, G24

Pages: 2562–2574

Ovakimyan E.K. Russian Presidential Academy of National Economy and Public Administration (RANEPA), Moscow, Russian Federation

ORCID id: not available

Subject The article deals with models for securitization of mortgage loans.
Objectives Drawing upon the theoretical analysis of methods for single- and multi-tranche securitization performed by the originating bank, I identify positive and negative aspects of each method.
Methods The methodological framework is based on the theoretical and comparative analysis.
Results The article focuses on two key methods for securitization of motrage loans, i.e. multi-tranche securitization and single-tranche securitization. I spotlighted and analyzed key strengths and weaknesses of the securitization methods. The single-tranche securitization was found to be more preferable for the originating bank, since it transfers the obligation of making default payments from the originating bank to the mortgage agent. However, I also found key weaknesses of the method, which may slow down the possible promotion of the financial mechanism in the long run.
Conclusions and Relevance The findings are relevant to the banking sector and entire financial market, since they help originating banks improve the existing strategies, especially those ones that prepare for securitization. The article will be useful to originating banks so that they could understand risks and strengths of a certain securitization method for their mortgage securities. The analysis is also of practical value for investors, which intend to invest in mortgage securities.

Keywords: securitization, DOM.RF, mortgage, asset


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