1. How securitisation has affected the institution of your choice prior and after the recession? - focus on impact of securitisation on risk levels, liquidity and profitability.

How securitisation has affected the institution of your choice prior and after the recession? - focus on impact of securitisation on risk levels, liquidity and profitability
Securitization
Securitization is the process by which the illiquid assets and with the assistance of financial engineering converts it into securities. Thus it is a package of debts which are illiquid in nature are transformed into securities and sold to the investors. The simplest form of security in the securitization process is the mortgage backed securities. This is a collection of securities which is backed by several assets which are mostly in the form of mortgage. The mortgage backed securities can be issued by third party financial institutions which are mostly investment banks. It is also issued by renowned American aggregators like Fannie Mae and Freddie Mac. Thus, it is the security which is created by support through claims against mortgage assets. The shares of the securities held in the process of securitization can be sold and traded in the secondary mortgage market which is huge and delivers high liquidity to the group of mortgages. It’s the pension funds which are invested in the high credit rated mortgage backed securities. It is a safe option as the returns may be low but these securities carries lower risks. On the other hand the hedge funds are invested in the low credit rating securities which carry high risks but delivers higher returns. Thus, it’s the return on investment which the investors receive from the investment in the securities backed by mortgage (Chris Gallant, 2019, Investopedia).
Impact of securitization on financial institutions - Fannie Mae and Freddie Mac
Securitization which is the package of mortgage debt was the ultimate reason due to which there was huge financial crisis in the 2007-08. Thus, it was the mortgage backed securities and the collateralized debt obligations issued by Fannie Mae and Freddie Mac which was the main reason for which the financial crisis took place. As there was a decline in the prices of the housing prices in United States, there was huge delinquencies which was discovered which also resulted in huge losses on the investments made by the investors on the mortgage backed securities. Fannie Mae and Freddie Mac are the mortgage companies which are supported and funded by the US federal government. In the secondary mortgage markets these institutions purchases and guarantees the mortgages which are issued through the lenders. They do not introduce or services their own mortgages. Fannie Mae and Freddie Mac are the largest financial mortgages instrument institutions in the United States. They are the monopolist in the mortgage backed securities and make the market more liquid, stable and guarantees for providing for liquidity to the banks, financial institutions and mortgage companies in the United...