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May 23, 2018, 03:54:24 PM |
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The introduction of mortgage backed securities MBS , while expanding financing sources and liquidity, introduced further complexity. Mortgage market securitization, for all its advantages, created an environment where sound credit assessment was relaxed. Confident that MBS would remain a low risk instrument because most mortgages debts are paid religiously even if some borrowers could default on their debts , banks began granting sub prime loans under unfavorable conditions. The number of sub prime loans in the U.S. reached almost a quarter of total mortgages originated in 20067. This created a systemic risk that turned into the sub prime crisis of 2007, and was also the main factor of the global financial crisis of 2008 and the ensuing Great Recession years.
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