This testimony, before the Senate Subcommittee on Securities, Insurance, and Investments, April 17, 2007, examines the role of securitization in the subprime market turmoil, describing how securitization atomized the lending process and turned over the de facto regulation of the subprime market to private entities such as rating agencies and investment banks. The testimony attributes the meltdown of the subprime market, the increased default rate and threat of rising foreclosures, as well as the difficulty of crafting an adequate response to that meltdown, to the effects of securitization. Securitization led to weakened and inconsistent underwriting standards and allowed many borrowers to obtain loans that, after a reset, the borrowers would be unable to repay and also be unable to refinance their way out of increasingly inappropriate loans. Securitization also decreases the discretion to modify the loan in meaningful ways to prevent foreclosure, as servicers of the loan are restricted by the pooling and servicing agreement and by their conflicting duties to different investors, leading to "tranche warfare."
- consumer protection,
- structured assets
Available at: http://works.bepress.com/kurt_eggert/8/