Mortgage credits and mortgage-backed securitization in real estate finance

Mortgage system has an important role of financing real estate through the institutional ways. Mortgage system is the process of providing funds to home buyers with mortgage credits in primary markets and transferring funds to economic system by transforming mortgage credits into securities in secondary market. In order to work this system properly, the funds which are needed by primary markets should be provided from secondary markets through securitization. With securitization, credit risk is transferred and capital needs are reduced by removing credits from balance sheet. Mortgage-backed securitization contributes to optimise the allocation of regulatory capital with the most important source of determining banking standards, The Capital Adequacy Accord developed by The Basel Committee on Banking Supervision. This study analyzes mortgage credits and mortgage-backed securitization in real estate finance and examines the effects of mortgage-backed securitization on reaching the minimum regulatory capital ratios. The data in which top 10 banks ranked by total assets is collected from Banks Association of Turkey. The empirical results point out that the application of mortgage-backed securitization would higher the bank?s capital adequacy ratio significantly. Keywords : Mortgage, mortgage-backed securitization, Basel I, Basel II