Overcollateralization

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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.
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References in periodicals archive ?
The lenders expected housing prices to continue rising, as had been the case for decades, which would thereby overcollateralize the loans.
Prepayment penalties are pledged to overcollateralize Ocwen's securities to reduce the impact of runoff.
On an annual basis, as calculated by Fitch, aggregate pledged cash flows excluding carry-forward surpluses overcollateralize bond debt service by a minimum of 2.1x through maturity.
On an annual basis, aggregate pledged cash flows excluding scheduled reserve deallocations overcollateralize both the senior and subordinate lien bonds' debt service by a minimum of 1.3x, which is comparable to Fitch's 'AAA' median for minimum annual loan-to-bond debt service coverage.
On an annual basis, loan repayments overcollateralize bond debt service by a minimum of 1.4x, which is equal to Fitch's 'AAA' rating category median.
On an annual basis, loan repayments alone overcollateralize bond debt service by a minimum of 4.3x, which compares very favorably to Fitch's median level of 1.4x.
On an annualized basis, such surplus loan repayments overcollateralize aggregate bond debt service by a minimum of 15x, which is well in excess of Fitch's 2017 'AAA' median of 1.4x.
On an annualized basis, such surplus loan repayments overcollateralize bond debt service by a minimum of 1.2x.
On an annual basis, pledged cash flows excluding scheduled reserve deallocations overcollateralize both the senior and junior lien bonds' debt service by a minimum of 1.3x.
On an annual basis, pledged cash flows excluding carry-forward surpluses overcollateralize bond debt service by a minimum of 2.0x until the very last year of the program's life, at which point overcollateralization decreases to 1.6x.