The most popular housing mortgage has become globalization with long history which can be traced back to the nineteenth century in Europe. At that time, securitization was mostly done is the bank by the means of issuing mortgage bonds. The modern mortgage securitization was actually originated in the United states. From the end of 1960s to the 70s, the United States had established three government agencies to promote the development of the secondary market of housing mortgage loan, so as to build the world’s most developed mortgage securitization market. Nowadays, in the trade bond market of the United States, mortgage securities have exceeded treasury bonds and become the largest bond.
Housing mortgage securitization had afterwards expanded from the United States to other countries and regions, such as Canada, Europe and Japan. Housing mortgage securitization had well developed and become perfection as a kind of financial technology and financial instrument. It is the most perfect typical of the asset securitization in American Commercial Bank. Housing mortgage securitization has it’s advantages as following:
I. Brings more solutions for the financing channel of commercial banks
The housing mortgage loan securitization is done by the bank in the means of converting bank held mortgages into securities and sell to investors for cash, the banks will afterwards use that cash to make new mortgage loans, which will expand funding sources of bank, and strengthening the ability of the bank to expand their assets. In the 90 ‘s, more than 60% of the housing mortgage loans in the United States were provided by issuing MBS bonds.
II. Help to reduce the risk for commercial banks
The terms of housing mortgage loan can be long as 20-30 years, and the borrowers usually pay the bank loan debt by installment. The liabilities of China’s commercial banks are basically various deposits, the majority of which are 5-year term deposits and demand deposits, the duration of assets and liabilities does not match, increasing the operational risk for banks. With the development of the housing mortgage loan business and the increase of the total proportion of bank loans, The structural contradictions of this kind of “short deposit and long loan” will become more and more prominent, and it is possible that the banks can get into the plight of serious liquidity shortage, which has a negative impact on economic development and social stability. Through the securitization of housing mortgage loans, the conversion of low liquidity loans into high liquidity securities, while improving the liquidity of banks ‘ assets, can also focus on the risk transfer of banks, dispersed to different preference investors, thus realizing the socialization of bank risk.
III. Improve the profitability of commercial banks
The implementation of securitization of housing mortgage loan not only can enlarge the bank’s source of funds, strengthen the liquidity of bank’s assets, but also can create new profit growth point for banks. Banks may retain service functions for securitised housing mortgages, including the recovery of loan principal and interest, Loan Account records, the organization of mortgage auctions and other related loan services, and the collection of service fees, which can lead to a fee income for banks. Banks may also serve as securities underwriters for the sale of mortgage-backed securities, which will charge a certain fee.3. The cash flow generated by the housing mortgage loan is paid after the interest and the expenses of the securities, and the bank has the right to participate in the distribution of the remaining cash flows if there is surplus. It can be seen that the securitization of housing mortgage loans breaks through the limitations of traditional deposit and loan spreads and develops new sources of income. Because of that business does not reflect on the bank’s balance sheet, there is no need to increase the bank’s capital, enhances the bank’s profitability.
IV. To strengthen the capital management of commercial banks The ratio of capital and weighted risk assets of commercial banks should be 8%. However, the low capital adequacy ratio has always been a prominent problem affecting the reform and development of China’s commercial banks. By using the technology of asset securitization, the securitization of housing mortgage loan and the removal of this part from the bank’s balance sheet can reduce the bank’s risk assets correspondingly, thus raising the bank’s capital adequacy ratio and raising the bank’s credit rating accordingly. Therefore, China’s commercial banks should strengthen capital adequacy ratio management, to improve the capital adequacy ratio, in addition to the molecular strategy that is, through the endogenous and external sources of two channels to enrich the capital, but also to take the “denominator strategy”, that is.