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 total collateral balance (inclusive of cash) is $350.5 million, compared to the note balance of $350.0 million, indicating that the transaction is overcollateralized by $449,270.
The change reflects Fitch's observation that class B certificates typically remain well overcollateralized even in moderate stress scenarios, thus giving reasonable assurance that certificate-holders should receive significant recovery based on collateral values alone, despite their subordinate position to the senior certificates in an EETC transaction.
Unlike residential mortgage lending, which usually permits higher LTV ratios, (205) commercial mortgage lending generally requires lower LTV ratios, which frequently causes the loan to be overcollateralized (206) by the CRE that secures the loan.
substitutes are typically overcollateralized. As Holmstrom states this
loan is overcollateralized. The terms of unsecured credit, however, will
loans that are not initially overcollateralized are inherently risky,
(19) If housing prices are certain to increase, even subprime mortgage loans will become overcollateralized over time.
Because of the guarantee that FICC provides, GCF Repo trades are not overcollateralized (unlike most repos).
An increase in stock prices, and thus a consequent increase in the value of the collateral, would then cause the loans to become overcollateralized. (60) In October 1929, however, the collapse in stock prices caused massive failure as many of those risky borrowers defaulted on the now-undercollateralized margin loans.
Home Loan Servicing Solutions is an internally managed owner of high quality mortgage servicing assets, predominantly mortgage servicing advances and non-agency mortgage servicing rights, which are highly overcollateralized with historically stable net asset values.
because: (a) overcollateralized loans are unproblematically the norm in
She fought an uphill battle to convince her carrier that the car rental company's risk was overcollateralized.