Mortgage-Backed Securities in the US and China: Benefits and Risks

The mortgage market is a large and growing part of the world's financial markets. In the United States alone, the mortgage debt totaled more than $13.3 trillion at the end of the third quarter 2014. Approximately $10 trillion of that debt is for single-family residences. In order to encourage home ownership through greater availability of mortgage funding and lower mortgage interest rates, the United States has established and maintained a market for mortgage backed securities (MBS) that allows investors to purchase interest in somewhat diversified pools of mortgages, thus providing liquidity to those financial institutions that originate mortgages. The total of outstanding NIBS based upon mortgages originated in the United States exceeded $7.5 trillion in 2014, representing more than 50% of all outstanding mortgages. China began to experiment with the securitization of assets in 2005, but suspended the experiment during the global Great Recession. Recently (2012), China allowed the asset securitization experiment to resume and in July 2014 the Postal Savings Bank of China served as the issuer of the first MBS issue in China in 7 years.