Mastering the metropolis through research and thought leadership.
Working Papers

The Jumbled Alphabet Soup of the Collapsed Home Mortgage Market: ABCP, CDO, CDS and RMBS

Working paper #666
Georgette Chapman Phillips

This paper analyzes the role of three investment vehicles in particular—Asset Backed Commercial Paper (ABCP), Collateralized Debt Obligations (CDOs) and Credit Default Swaps (CDSs)—in transforming the. somewhat stodgy, heavily regulated RMBS market into the financial equivalent of the lawless wild west of “buy first, ask questions later.” Though different in their structure and investment horizon, all of these derivative products have the similarity of promoting investing severed from understanding the underlying risk. Real estate risk was masked by painting over a layer of fixed income structured finance. However, just as a top layer of paint does not cover without primer, the layer of structured finance was applied without the primer of mutual understanding between the real estate market and the bond market. As the real estate risk bubbled through, the derivative structures peeled off and the market spiraled into disarray. The essential question is: Should something as fundamental as home finance be the financial playground for esoteric investments? To state the problem another way: Is housing policy so important as to cordon off this financial market to all but the safest investment vehicles?

Download full paper · 1MB PDF


In This Section
Explore Topics

1010 Affordable Housing Amazon Amenitization Architecture Artificial Intelligence Asia Australia automation Autonomous Vehicles Borrowing Constraints Brexit California Canada Capital Business China Co-Working Environment coastal markets Colombia Commercial Brokerage Commercial Real Estate commissions Congestion consumer bias covid-19 CRE credit card market Credit Default Swaps Credit Insurance Credit Risk Transfers Culture Data Analytics Data Collection Technology Debt Market Demand Demographics Density Development Discrete Choice disruption Diversity drones e-Commerce Economic Corridors economic policy economics Equity Funds Equity Market Ethnic Factors Europe Fannie Mae financial asset management Foreclosures Foreign Policy France Freddie Mac general equilibrium Global Global Financial Crisis Globalization great depression Great Recession Hedonic Housing & Residential housing boom Housing Disease housing prices Housing Supply Identity Income Inequality India Inter-generational mobility Investing jobs labor market Lagging Regions land use regulation Language Macroeconomics malls Market Pricing megacities Microeconomics Migration Minimum Payments Mixed-Use Mobility moral hazard mortgage insurance mortgage market Mortgage Rates Mortgages Multi-family Nation Building Non-Traditional Mortgages Office Market office sector Placed Based Policies Political Risk Price Discovery Private Equity Business public health Public Schools real estate brokerage Real Estate Investment Real Estate Investment Trusts Recession Rental Retail Retirement reverse mortgages Risk Adjustment risk-shifting robotics single family housing Slums Sorting South America Spatial Regions spillover effect Sub-Prime Mortgages Sustainability Technology trade transportation United States Urban Urbanization Warehouse welfare

arrow_drop_up