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 FINANCIAL CRISIS INQUIRY COMMISSION REPORT

Subprime Mortgage Originations
In 2006, $600 billion of subprime loans were originated, most of which were
securitized. That year, subprime lending accounted for 23.5% of all mortgage
originations.

IN BILLIONS OF DOLLARS
23.5%
$700
Subprime share of entire 22.7%
20.9%
mortgage market
600
Securitized
500 Non-securitized
8.3%
400
10.6% 10.1%
10.4% 7.6% 7.4%
300
9.2%
9.5% 9.8%
200
100
1.7%
0
’96 ’97 ’98 ’99 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08

2007, securities issued exceeded originations.
SOURCE: Inside Mortgage Finance

Figure .

more familiar with the securitization of these assets, mortgage specialists and Wall
Street bankers got in on the action. Securitization and subprime originations grew
hand in hand. As figure . shows, subprime originations increased from  billion
in  to  billion in . The proportion securitized in the late s peaked at
, and subprime mortgage originations’ share of all originations hovered around
.
Securitizations by the RTC and by Wall Street were similar to the Fannie and
Freddie securitizations. The first step was to get principal and interest payments from
a group of mortgages to flow into a single pool. But in “private-label” securities (that
is, securitizations not done by Fannie or Freddie), the payments were then “tranched”
in a way to protect some investors from losses. Investors in the tranches received dif-
ferent streams of principal and interest in different orders.
Most of the earliest private-label deals, in the late s and early s, used a
rudimentary form of tranching. There were typically two tranches in each deal. The