Key Differences US vs Europe
Although the underlying characteristics are similar across the two regions, fundamental differences exist in the two markets.
- Government-sponsored entities create a liquid securitization market:
- Credit risk sold
- Need not be self-funded
- Standardized product
- Virtually no prepayment penalties
- Results in high refinance market
- Capital requirements low
- Limited secondary market, assets retained
- Credit risk retained
- Funded through bond issuances
- Prepayment penalties
- Limits refinance market and origination volume
- Capital requirements high
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