Who Is 'Lewis Ranieri'

Lewis Ranieri is a former bond trader and former vice chairman of Salomon Brothers who is credited with introducing securitization​ to the financial world. In 1977, savings and loans banks were feeling the financial difficulties involved with funding short-term, higher-interest demand deposits with longer-term, low-interest mortgages. As a result, banks did not want to hold too many mortgages. This limited mortgage issuance and suppressed the housing market. Lewis Ranieri came up with a novel solution where he created five- and 10-year bonds from 30-year mortgages. These new mortgage-backed securities (MBS) helped Ranieri attract a larger crowd of investors, taking the mortgages off the banks' books and allowing them to issue fresh mortgages as the existing ones were sliced up and sold off. Ultimately Ranieri's securitization revolution caused all sorts of debts (such as credit card debt) to be rolled into bonds. Initially, MBSs were only acknowledged by a handful of states as legitimate investments, but Ranieri's actions eventually led to federal government measures that supported these securities as a valid investment asset class, leading to the development of the bond market. For this reason, Ranieri is seen as the father of securitization. 

Breaking Down 'Lewis Ranieri'

Lewis Ranieri wasn't the sole mind behind the creation of the mortgage-backed security, but he was the greatest champion when it came to ensuring that the new investment prospered. In addition to the MBS, Ranieri played a role in the creation of the collateralized mortgage obligation (CMO), another complex repackaging of debt. However, the practice of securitization, once articulated, spread like wildfire through the financial world. To this day, securitization plays a critical role in everything from credit card debt to the national debts of developing nations. Ranieri left Salomon Brothers to found Hyperion Partners before founding his current venture, Ranieri Partners, an advisor and manager of private investments. 

Lewis Ranieri's Role in The Big Short

Lewis Ranieri was well known in financial circles for his primary innovation of securitization and his lobbying efforts that saw the MBS become a critical financial instrument for the real estate market, but he was not publicly well known until the movie The Big Short highlighted his financial innovation and its role in the mortgage meltdown. Ranieri reflected the blame for his role in the crisis back upon Wall Street and the lenders for abusing the system of securitization to create subprime loans and teaser rates that almost guaranteed a homeowner would default long term. 

RELATED TERMS
  1. Securitize

    Securitize is the process of combining debt contracts into a ...
  2. Mortgage-Backed Security (MBS)

    A mortgage-backed security is a type of asset-backed security ...
  3. Aggregator

    An aggregator is an entity that buys mortgages for the purpose ...
  4. Salomon Brothers

    Salomon Brothers was a storied Wall Street investment bank that ...
  5. Lehman Brothers Mortgage-Backed ...

    The Lehman Brothers Mortgage-Backed Securities (MBS) index is ...
  6. Agency MBS Purchase

    Agency MBS purchase is most commonly used to refer to the U.S. ...
Related Articles
  1. Investing

    Investing in securitized products

    Securitized assets are customizable pools of financial assets that come with a wide range of yields. Learn what makes them an attractive asset class.
  2. Personal Finance

    Behind the scenes of your mortgage

    Four major players slice and dice your mortgage in the secondary market
  3. Investing

    Find Security In Covered Bonds

    Find out about a safe investing alternative that could have prevented the subprime meltdown.
  4. Personal Finance

    How Interest Rates Affect the Housing Market

    Understand how rate changes can affect home prices and learn how you can keep up.
  5. Personal Finance

    Are mortgage-backed securities backed by any guarantees?

    Actually, any mortgage-backed security (MBS) guarantee depends on who issued it.To review, an MBS is a security, created through the process of securitization, in which the underlying assets ...
  6. Personal Finance

    The Most Important Factors that Affect Mortgage Rates

    Discover what the most important factors are that affect mortgage interest rates. Factors range from inflation and economic growth to Federal Reserve activity, .
  7. Insights

    The Fuel That Fed The Subprime Meltdown

    Take a look at the factors that caused this market to flare up and burn out.
  8. Insights

    The Fall of the Market in the Fall of 2008

    How did America's strong economy tumble so quickly? Find out here.
RELATED FAQS
  1. Who Bears the Risk of Bad Debts in Securitization?

    Bad debts arise when borrowers default on loans. But that risk can be split up in different ways. Read Answer >>
  2. What are some historical examples of debt securitization?

    Find out how debt securitization started, how it works and why the government facilitated the mortgage-backed security market ... Read Answer >>
  3. Why do MBS (mortgage-backed securities) still exist if they created so much trouble ...

    Read several different arguments in favor of allowing the trade of mortgage-backed securities, even after the financial crisis ... Read Answer >>
  4. How does securitization increase liquidity?

    Learn how securitization increases affects working capital and liquidity, and why it matters for a company seeking to increase ... Read Answer >>
Hot Definitions
  1. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  2. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
  3. Internal Rate of Return - IRR

    Internal Rate of Return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.
  4. Limit Order

    An order placed with a brokerage to buy or sell a set number of shares at a specified price or better.
  5. Current Ratio

    The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations.
  6. Return on Investment (ROI)

    Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment or compare the efficiency ...
Trading Center