Overcollateralization

(redirected from Over-collateralized)

Overcollateralization

The practice or process of placing an asset as collateral on a loan where the value of the asset exceeds the value of the loan. For example, a person could pledge a farm (worth $10 million) on a loan for $5 million. Usually, however, the value of the asset only exceeds the value of the loan by 10-20%. Overcollateralization reduces the risk for the lender and improves the borrower's creditworthiness. It is used most commonly when a bond issuer wishes to improve its credit rating.
References in periodicals archive ?
The Somei Platform will fill the gap by providing long-term debt to companies in need while offering its lenders limited downside via over-collateralized positions and modest upside through profit sharing.
HLSS' assets are predominately mortgage servicing advances that, along with the related servicing rights, are over-collateralized 30 times by residential real estate.
Be careful not to allow one lender to become unduly over-collateralized by taking a lien against multiple stores where the financed amount is not warranted, as this will limit your ability to obtain capital to finance growth initiatives by offering an additional store as collateral.
For instance, these policies could potentially bring about a second subprime mortgage crisis in Korea because of the over-collateralized, over-amplified, and high-risk securities.
Banks and corporations that invested in these complex, over-collateralized "AA rated mortgages later found out that they were worth nothing," she continued.Aa
Lenders are a highly fragmented group and over-collateralized (indicating lenders will not take much of a gamble on the company).
These securities are normally over-collateralized so that income from the mortgages is sufficient to ensure timely payment of interest and principal to the security holders.
Moreover, should SRC look to unwind the structure as the notes issued through it are either prepaid or mature, there are structural elements that will result in the structure becoming over-collateralized and by extension weakening unencumbered asset coverage until the final dollar of Trust debt is repaid.
By contrast, products that advance funds for benefit payments from the provider's general account leave the portfolio over-collateralized. That is, the value of the plan's assets are greater than the book value of the contract.