History of securitization:
Securitization in its present form originated in the mortgage markets in USA. It was promoted with the active support of the government. The government wanted to promote secondary markets in mortgages to allow liquidity for mortgage finance companies. GNMA was the first one to buy mortgages from mortgage companies and to convert them into pass through securities – this was 1970.
Other US government agencies, FNMA and Freddie Mac jumped in later.
The first securitization of receivables outside the mortgage markets happened in 1975 when Sperry Corporation securitised its computer lease receivables.
The European model: pfandbriefe and mortgage bonds:
Another mortgage funding device, slightly different from the US-type pass throughs, has existed in Europe for almost two centuries in the past.
In Denmark, for example, mortgage bonds are more than 200 years old. Germany also has a long history of pfandbriefes and it is stated that there have been no defaults on these instruments for all these years!
Readings on our site:
- The history of securitization coincides with the history of residential mortgage-backed securities (RMBS). For a general write-up on RMBS transactions, click here.
- A general introduction to Pfandbriefe along with the historical setting dating back to Emperor of Prussia was put up on our News page. Click here.
- Yet another write up on mortgage bond markets in several European countries – click here.
Readings on the Web:
The Euromoney website contains articles on Pfandbriefes – look under the Markets and Products columnb. Click here to go to Euromoney website.