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The process of securitization is relatively easy. First, an entity (the originator) desiring financing identifies an asset that is suitable to use. Loans or receivables are common examples of payment streams that are securitized. Second, a special legal entity or Special Purpose Vehicles ("SPV") is created and the originator sells the assets to that SPV. This effectively separates the risk related to the original entities operations from the risk associated with collection. When done properly the loans owned by the SPV are beyond the reach of creditors in the case of bankruptcy or other financial crisis; i.e. the SPV is bankruptcy remote. Next, to raise funds to purchase these assets the SPV issues asset-backed securities to investors in the capital markets in a private placement or pursuant to a public offering. These securities are structured to provide maximum protection from anticipated losses using credit enhancements like letters of credit, internal credit support or reserve accounts. The securities are also reviewed by credit rating agencies that conduct extensive analyses of bad-debts experiences, cash flow certainties, and rates of default. The agencies then rate the securities and they are ready for sale - usually in the form of mid-term notes with a term of three to ten years. Finally, because the underlying assets are streams of future income, a Pooling and Servicing Agreement establishes a servicing agent on behalf of the security holders. The services generally include: mailing monthly statements, collecting payments and remitting them to the investors, investor reporting, accounting, collecting on delinquent accounts, and conducting repossession and foreclosure proceedings.
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Why would you expect securitization to take place only in highly developed capital markets?
because your mom is gay
What is secrutization?
Securitization is a type of marketable preparation. It makes sure the securities in marketing that are readily available show the interests in an ownership.
9 Why would you expect securitization to take place only in highly developed capital markets?
because your mom is gay
What is the relationship between securitizatioln and the role of financial intermediaries inthe economy. What happen to financial intermediaries as securitization progresses?
- Securitization changes the basic role of financial intermediaries. Traditionally, financial intermediaries have pooled funds from investors loaned to firms in their place. - Securitization has enabled firms to offer these functions in the form of a security, in which case, the focus shifts to the more essential function i.e. distributing a financial product. (For example, in the above case, the bank, being the earlier intermediary, was eliminated, and instead the services of an investment banker were sought to distribute a debenture issue.) - Securitization seeks to eliminate fund based financial intermediaries for fee based distributors. (In the above example, the bank was a fund based intermediary, a reservoir of funds, whereas the investment banker was a fee based intermediary, a catalyst, a pipeline of funds. Hence, with the increasing trend towards securitization, the role of fee based financial services has been brought into the focus.) - In case of a direct loan, the lending bank was performing several intermediation functions as noted above. It was distributor, in the sense that it raised its own finances from a large number of small investors. It was appraising and assessing the credit risks in extending the corporate loan, and having extended it, it was managing the same. - Securitization splits each of these intermediary functions apart, each to be performed by separate specialized agencies. The distribution function will be performed by the investment bank, appraisal function by a credit rating agency, and management function, possibly by a mutual fund which manages the portfolio of security investments by the investors. Hence, securitization replaces fund based services with several fee based services. This is mainly from http://www.citeman.com/5298-securitization-capital-markets-structured-financial-and-others/
What has the author U S Sohoni written?
U. S. Sohoni has written: 'Securitization of assets' -- subject(s): Asset-backed financing
What is securitisation of dedt?
I'll give you a simple answer to this question. If you want a more elaborated answer feel free to email me at ddresearch@aim.com The securitization of debt is a process in finance by which risk is distributed by aggregating assets in a pool. Then new securities are issued backed by the assets and their future cash flows. I will use the housing market crisis to show an example. One of the housing crises was triggered by the increased used of the Collateralized Debt Obligations. This were pretty much securities or stocks that where created by pulling together sub-prime mortgages. Other less risky mortgages were also added to this pools. The new securities that were created by investment banks (this is the securitization process) had as earnings the cash flows of the mortgages. Which is in simple terms the monthly mortgage payments people made to their houses.
What is securitization?
Securitization is the process of transforming collateral or obligations into traded securities. An easy way to understand this is through example. The mortgage backed securities market is one of the largest and most liquid in the United States. Through the process of securiization, mortgages are transformed into bond-like securities. Assume a bank has made 100 mortgage loans ranging from $150,000 to $350,000 each to new homeowners this month. The homeowners have agreed to pay interest rates from 6.00% to 6.50% for 30 years on their various mortgages. Instead of holding 100 different mortgage loans of different sizes and coupons, and having risk to the credit of these homeowner on their balance sheet, the bank can use expected cash flows on the mortgages to securitize the mortgages into a mortgage-backed-security (a bond backed by the cash flows of the mortgages). In this case, assume the average loan size was $200,000, and the average interest rate was 6.25%. The 100 loans could be packaged together to create a $20,000,000 security paying 6.25%. Such a security would have a prospectus, which outlined the terms of the bond, and also would get a credit rating. The process of securitization transforms those smaller loans into a larger, more uniform, liquid security. This security could then be sold to an investor, such as a hedge fund, insurance company, mutual fund, or even another bank.
What has the author T H Donaldson written?
T. H. Donaldson has written: 'Credit risk and exposure in securitization and transactions' -- subject(s): Bank loans, Credit, Credit control, Risk management
What has the author Karin Svedberg Helgesson written?
Karin Svedberg Helgesson has written: 'Securitization, accountability and risk management' -- subject(s): Money laundering, Banks and banking, Asset-backed financing, Liability (Law)
Is a mortgage a security?
Mortgage-backed securities (MBS) are debt obligations that represent claims to the cash flows from pools of mortgage loans, most commonly on residential property. Mortgage loans are purchased from banks, mortgage companies, and other originators and then assembled into pools by a governmental, quasi-governmental, or private entity. The entity then issues securities that represent claims on the principal and interest payments made by borrowers on the loans in the pool, a process known as securitization.
What is a Mortgage Backed Security?
Mortgage-backed securities (MBS) are debt obligations that represent claims to the cash flows from pools of mortgage loans, most commonly on residential property. Mortgage loans are purchased from banks, mortgage companies, and other originators and then assembled into pools by a governmental, quasi-governmental, or private entity. The entity then issues securities that represent claims on the principal and interest payments made by borrowers on the loans in the pool, a process known as securitization.
What is the role of a debt recovery tribunal in securitization?
These Tribunals are established under the Recovery of Debts Due to Banks and Financial institutions Act, 1993 to deal with the cases of recovery of debts above Rs. Ten lakh due to banks and financial intuitions.
