Did Securitization of Mortgage Loans Create Moral Hazards? A Study Based on the Experience of US and Malaysia

Mohd Pilus, Fairuzana (2009) Did Securitization of Mortgage Loans Create Moral Hazards? A Study Based on the Experience of US and Malaysia. [Dissertation (University of Nottingham only)] (Unpublished)

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Abstract

Securitization is considered as one of the most important financial development in recent history. It offer the benefits of improving returns on capital, lowering borrowing

costs, diversifying risks, increasing secondary market liquidity and increasing availability of credit for mortgage borrowers.

However, many parties blamed the moral hazards in the securitization of mortgage loans as the key factor contributing to the recent US financial crisis of 2007 - 2008. To investigate the claim, we used the case studies of securitization of mortgage loans in US as our base and compare it with the experience of Malaysia.

Premised on the literature review findings and the results of the case studies, we find supports that securitization of mortgage loans did create moral hazards and could not

find evidence that proves otherwise.

We conclude that securitization of mortgage loans did create moral hazards. However, the level of moral hazards experienced by the US and Malaysia differ. The differences were attributed to, amongst others, the strength of the underwriting standards, the complexities of securities and the strength of regulations in the two countries. We also conclude that the present of moral hazards did not preclude the fact that securitization provides benefits to the players and the economy, particularly when developed in the context of well-aligned incentives and oversight.

Item Type: Dissertation (University of Nottingham only)
Depositing User: EP, Services
Date Deposited: 17 Mar 2010 15:49
Last Modified: 24 Oct 2016 02:47
URI: http://eprints.nottingham.ac.uk/id/eprint/22977

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