Securitization and the Extension of Mortgage Credit

Resource type
Thesis type
(Thesis) M.A.: Master of Financial Risk Management
Date created
2010-09-02
Authors/Contributors
Author: Fang, Dong
Author: Yi, Lingyu
Abstract
This project focuses on explaining why the aggressive lending in the sub-prime market is a rational behavior of the sub-prime lenders in a qualitative and quantitative way. Through comparing the differences between a traditional mortgage market and the sub-prime market with the involvement of securitization, we can observe that the borrowers bargaining power has changed accordingly. Securitization has prevented borrowers from behaving strategically when serving the debt. Through modeling, we are able to numerically show that when the borrower has limited options to strategically serve the debt, the lender will respond by extending more credit over per dollar of collateral. This is exactly what the banks were doing when making sub-prime loans to potential homeowners. Based on the game theoretical partial differential equation model, our numerical results suggest that aggressive lending is not a predatory behavior, rather, it is a rational movement of the sub-prime lenders.
Document
Description
Research Project (M.B.A.) - Simon Fraser University

Keywords

Copyright statement
Copyright is held by the author.
Scholarly level
Supervisor or Senior Supervisor
Thesis advisor: Klein, Peter
Language
English
Attachment Size
FRM 2008 Fang, D. and Yi, L..pdf 502.98 KB