Is mortgage securitization back on the menu?
As we covered yesterday, the Royal Bank of Scotland is looking to raise around £4.7 billion in the mortgage-backed securities market by issuing bonds which are effectively backed by the company's mortgage book. While only a few years ago a £4.7 billion securitization issue would not even have hit the headlines, this is by far and away the largest proposal regarding mortgage backed securities for some time. So are mortgage-backed securities back on the menu?
There is no doubt that companies such as Royal Bank of Scotland, and all of the leading banks in the UK, would like to free up more capital from their mortgage books to increase liquidity and support the UK property market in the short to medium term. The securitization of an asset is simply a way in which, using discounted interest rates, the future income of an asset is effectively paid early allowing the holder to use these funds elsewhere.
The mortgage securitization market was very prevalent in the early days of the worldwide credit crunch and worldwide economic downturn which is perhaps the main reason why this particular market has been so quiet of late. All eyes will be on the Royal Bank of Scotland's £4.7 billion issue and this could have major implications regarding decisions taken by UK banks and worldwide banks in the short to medium term.
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