A NEW DEBT MARKET EMERGES
Once upon a time, mortgage loans in the US were funded by deposits from savers in the local community. They still are, to a certain extent. But, today, a huge secondary mortgage market has also developed in which institutional investors across the US, and abroad, have become an important source of funds for America's housing needs.
The secondary market itself is not new. Thrifts have been buying and selling mortgages among themselves since 1949, for example. But the revolution in housing finance stems from the securitization of mortgages, which began in 1970 and gained rapid momentum just four years ago. Since then, the mortgage securities market has achieved staggering proportions.
At the end of last year, there were roughly $400 billion of mortgage-backed securities outstanding. Last year alone, more than $100 billion of new mortgage securities were issued and perhaps as much as $1 trillion of mortgage securities were traded. Even more vigorous growth is expected this year.
The new market has been a bonanza for Wall Street, where leading firms have aggressively sought to build teams of experts, develop product innovations and seize market share as underwriters and traders.