securitization

(redirected from Asset securitization)
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Related to Asset securitization: mortgage

Securitization

Creating a more or less standard investment instrument such as the mortgage pass-through security, by pooling assets to back the instrument. Also refers to the replacement of nonmarketable loans and/or cash flows provided by financial intermediaries with negotiable securities issued in the public capital markets.

Securitization

The process by which a company packages its illiquid assets as a security. For example, when a company makes an initial public offering, it effectively packages the company's ownership into a certain number of stock certificates. Securities are backed by an asset, such as equity, or debt, such as a portion of a mortgage. Securitization allows a company access to greater funding to expand its operations or investments, or some other reason.

Securitization.

Securitization is the process of pooling various types of debt -- mortgages, car loans, or credit card debt, for example -- and packaging that debt as bonds, pass-through securities, or collateralized mortgage obligations (CMOs), which are sold to investors.

The principal and interest on the debt underlying the security is paid to the investors on a regular basis, though the method varies based on the type of security. Debts backed by mortgages are known as mortgage-backed securities, while those backed by other types of loans are known as asset-backed securities.

securitization

an arrangement which involves putting together a claim on particular assets of a business which is then sold as a negotiable security in the financial markets. Securitization is mainly undertaken by financial institutions; assets involved typically include commercial paper, mortgages, car loans, export credits and credit card receivables.

Securitization enables the issuing institution to raise ready cash, thus improving its liquidity. Purchasers of such securities seek to profit by obtaining claims on assets at less than their redemption value, but they may choose to on-sell their claims in the market.

securitization

a financial technique for raising loan capital that involves a firm issuing a CORPORATE BOND backed by certain specified assets owned by the firm. The interest charges on the bond and the eventual repayment of the bond itself are met by the income streams earned by the underlying assets, while the capital sum raised by the bond can be invested in other areas of the firm's activities. The alternative way to release the capital represented by the underlying assets would be to sell them off or to DEMERGE them into a separate business.

securitization

The process of taking many individual assets and combining them into a group,or pool,so that investors may buy interests in the pool rather than in the individual assets.The creation of collateralized mortgage backed securities is one example.The process increases the number of possible investors due to the ability to sell shares in the pool at relatively modest prices.In addition, because of the high degree of predictability inherent in large groups of things, the process of securitization increases predictability,lowers risk,and therefore increases value.

Example: On a single flip of a coin, how much would you bet that the coin would land heads up? On 20,000 flips of a coin, how much would you bet that it would land heads up fifty percent of the time, give or take two percent? This is a fundamental concept of securitization.

References in periodicals archive ?
Among a broad range of topics on military-civilian industry integration and capital market initiatives, participants focused on asset securitization strategies of military enterprises as an effective vehicle for the reform in mixed ownership system, the new government initiative that is expected to bring a second SOE revolution.
Industry insiders commented that, credit asset securitization allows commercial banks to better serve real economy since it offers many benefits: provide more investment choices in capital market, raise the percentage of capital raised directly, optimize the capital-raising structure in financial market, connect the credit system with securities market and improve the efficiency of financial asset allocation, which can help banks better support the development of the real economy.
The revised rule addresses the risk-based capital treatment for recourse obligations, residual interests (except credit-enhancing I/Os), direct-credit substitutes, and senior subordinated securities in asset securitizations that expose banking organizations (including bank holding companies) primarily to credit risk.
Finally, for the creative who have already identified several areas of potential tax arbitrage, there is an anti-abuse rule to prevent the use of the FASIT provisions for other than the intended purpose of asset securitization.
The forces at work favoring asset securitization are strong and pervasive.
The asset securitization program is collateralized by accounts receivables of certain of the company's North American subsidiaries and is conducted through Arrow Electronics Funding Corporation, a wholly-owned, bankruptcy remote subsidiary.
Indeed, for larger issuers in the public market, asset securitization usually offers a AAA pricing complement to current funding sources.
Related Research: Atlantic Asset Securitization, LLC
The asset securitization section is amended to further underscore the importance of sound risk-management practices in all aspects of asset securitization.
The proposal by the agencies addresses concerns with residual interests raised in the December 1999 Interagency Guidance on Asset Securitization.
La Fayette Asset Securitization, LLC (November 2006)
I thank you for this opportunity to discuss asset securitization as it relates to financial institutions.