CHAP TER 1 6
In October 1990, one year after the Resolution Trust Corporation (RTC) was created, a
securitization program was established to facilitate the sale of mortgage loans. This
chapter focuses on the creation, development, and performance of this program.
Mortgage loans were the largest single category of assets in the RTC’s inventory. In
August 1990, the total volume of those loans held in RTC-controlled institutions was
estimated to be more than $34 billion. The size of this portfolio led the RTC to explore
the concept of securitization as a method for broadening the potential range of mortgage
loan purchasers because the market for mortgage-backed securities was large and well
Securitization is the process by which assets with generally predictable cash flows
and similar features are packaged into interest-bearing securities with marketable invest-
ment characteristics. Securitized assets have been created using diverse types of collateral,
including home mortgages, commercial mortgages, mobile home loans, leases, and
installment contracts on personal property. The most common securitized product is the
mortgage-backed security (MBS). The following types of mortgage loans are most suit-
able for securitization.
M A NAGIN G THE CRISIS
Conforming Residential Loans
Conforming residential loans are single-family, performing (one-to-four family) mort-
gage loans that conform to Federal National Mortgage Association (Fannie Mae) and
Federal Home Loan Mortgage Corporation (Freddie Mac) guidelines and/or standards.
In 1997, these agencies had more than $3 trillion of outstanding mortgage securities
backed by conforming residential loans.
Nonconforming Residential Loans
Nonconforming residential loans are single-family, performing (one-to-four family)
mortgage loans that do not conform to Fannie Mae or Freddie Mac standards. Private-
sector sellers and government agencies other than FDIC and RTC securitized more than
$159 billion of nonconforming mortgage