The Study of Residential Mortgage Backed Securities During Subprime Mortgage: Malaysian Experience

The objective of the study is to testify that the use of residential mortgage-backed securities by Cagamas to finance government staff housing in Malaysia has the ability to increase its net assets value even during global financial crisis 2007-2009. In Malaysia, many firms have been reported involve in Asset Back Securities since 1986s where Cagamas, as its national mortgage agency, is a pioneer. This research examines the determinants of primary market spread and measures financial performance of Cagamas Berhad to represent government housing loans in Malaysia. As a preliminary case study of Cagamas Mortgage-Backed Securities as an issuer the financial performance of its issues of Residential Mortgage Backed Securities is measured by key financial ratios in terms of profitability, capitalization and debt coverage for financial years of 2008-2012, and its key performance indicators as measured by net default and prepayment rates. For leverage effects, the firm shows higher debt coverage and higher earning capacities. Interestingly, its cumulative net default rate and prepayment rate far the percentage of principal balance on the purchase date for both conventional and Islamic securitization show lower than their indicative rates. The findings support past studies on benefits of asset securitization and interestingly verifying that residential Mortgage Backed Securities provides highly rated long-term investment to bank institutions, insurance companies and fund managers and increases its net assets value of securitization. Therefore, Residential Mortgage Backed Securities meets its principal activity for financing government staff housing loans successfully with its net default and prepayment rates show steady improvements on year to year basis.