Question

why securitisation was accused to be at the heart of the 2008 subprime crisis

Answer 1

The securitisation was accused to be at the heart of the 2008 subprime crises.

The securitization of subprime into mortgage-backed securities (MBS) & collateralized debt obligations (CDO) was a major factor in subprime mortgage crisis. Subprime MBS and CDOs were attractive to investors due to the higher interest rates they offered versus assets backed by prime mortgages. Subprime borrowers with less than perfect credit had higher interest rates on their mortgages due to the increased risk of default..

Subprime lending caused a dramatic increase in available mortgage credit. Many loans were made to borrowers who would have previously had difficulty obtaining mortgages due to below-average credit scores.

Private lenders made a lot of money by pooling and selling the subprime mortgages. However, the risk of foreclosure increased with the relaxing of credit standards.

Lenders and buyers incorrectly assumed that real estate values were impervious to a downturn. Private-label MBS provided a lot of the necessary capital for the subprime mortgages. Around 80% of subprime loans were made with private-label MBS in 2006 only.

In March 2007, the value of subprime mortgages was valued at around $1.3 trillion. The mortgages issued by private lenders had greater risk since they were not backed by the government.

By August 2008, around 9% of all mortgages in the U.S. were in default. MBS and CDOs began to lose value with the higher default rates.

Therefore we hereby may consider the above statement " securitisation was accused to be at the heart of the 2008 subprime crises"