We survey the literature on securitization and lay out a research program for its open questions. Securitization is the process by which loans, previously held to maturity on the balance sheets of financial intermediaries, are sold in capital markets. Securitization has grown from a small amount in 1990 to a pre-crisis issuance amount that makes it one of the largest capital markets. In 2005 the amount of non-mortgage asset-backed securities issued in U.S. capital markets exceeded the amount of U.S. corporate debt issued, and these securitized bonds – even those unrelated to subprime mortgages — were at the center of the recent financial crisis. Nevertheless, despite the transformative effect of securitization on financial intermediation, the literature is still relatively small and many fundamental questions remain open. Prior to the financial crisis of 2007-2008, securitization was a very large part of U.S. capital markets. It played a central role in the recent financial crisis. Yet it is largely unregulated and it is not well understood. There is little research on this topic. In this paper, we survey the literature on securitization and summarize the outstanding questions. Traditionally, financial intermediaries originated loans that they then held on their balance sheets until maturity. This is no longer the case. Starting around 1990 pools of loans began to be sold in capital markets, by selling securities linked to pools of loans held by legal entities called “special purpose vehicles” (SPVs). These securities, known as asset-backed securities (ABS) (or mortgage-backed securities (MBS), in the case where the loans are mortgages) are claims to the cash flows from the pool of loans held by the SPV. Such securities can be issued with different seniorities, known as tranches. Securitization has fundamentally altered capital markets, the functioning of financial intermediation, and challenges many theories of the role of financial intermediaries.

Securitization has an important role in the U.S. economy. As of April 2011, there was $11 trillion of outstanding securitized assets, including residential mortgage-backed securities (RMBS), other ABS and asset-backed commercial paper (ABCP). This is substantially more than the size of all outstanding marketable U.S. Treasury securities—bonds, bills, notes, and TIPS combined. A large fraction of consumer credit in the U.S. is financed via securitization. It is estimated that securitization has funded between 30 percent and 75 percent of lending in various consumer lending markets and about 64 percent of outstanding home mortgages. In total, securitization has provided over 25% of outstanding U.S. consumer credit.