Loan securitization rose from the ashes of the savings-and-loan crisis in the mid-to-late 1980s. It was a time when failed thrifts were desperately trying to get illiquid assets off their balance sheets. The author of House of Cards, William D. Cohan, says that this became the birth of loan securitization. It got assets off the thrifts’ balance sheets and gave them some liquidity, so they could keep operating.
The first such loan securitization of subprime loans was underwritten in October of 1997 by Bear Stearns and First Union Capital Markets. And Freddie Mac guaranteed the payments on the first securities. Bear was instrumental in getting the market to dramatically change by getting Fannie and Freddie to directly issue REMICs, real-estate mortgage investment contracts.