Securitisation
Bundling many small loans into a tradable security, then slicing it by risk.
The invention
The problem. Local banks could only lend as much as their deposits allowed, so mortgage credit was geographically rationed.
Ginnie Mae issued the first mortgage-backed security in 1970, letting a bank sell loans and lend again. The idea genuinely democratised mortgage access. The complication is that it separates the person who decides whether a loan is good from the person who bears it when it is not.
Aerial view of a suburban housing subdivision in Clermont County, Ohio, outside Cincinnati
2016 · Library of Congress · Public domain
Where it has failed
Not a list of disasters. A pattern library.
- 1994United States
The mortgage derivative blowup
Rate rises destroyed structured mortgage products; several funds and a large county went bankrupt.
Structured products fail on the risk that was structured away rather than the one that was hedged.
- 2007–2009Global
CDOs
Pools of subprime loans rated AAA on the assumption that regional defaults were independent. They were not.
The rating measured the model. The model's correlation assumption was the entire product.
Where it stands today
You now have the shape. Here is the reading.
Live from public data, pulled at request time. Read it with the failures above in mind — not because a repeat is due, but because knowing the mechanism is what lets you recognise one early.
30-year fixed mortgage average
Freddie Mac via FRED
No data returned
FRED (St. Louis Fed) needs FRED_API_KEY in your environment. It is free to obtain — see the sources screen for the link.
Freddie Mac via FRED
In your ledger
Your mortgage is probably in one of these. It changes who you are actually paying, and who decides if you can renegotiate.
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