Overcollateralization

(redirected from Overcollateralized)

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 ?
Fitch's model indicates that the B tranche will become increasingly overcollateralized through the life of the transaction.
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.
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.
In addition, other supporters of a covered bond market have pointed to the fact that legislation would require that the cover pool be overcollateralized.
However, the risks and potential costs can be made very small, by requiring covered bond pools to be overcollateralized, and by creating them using only uninsured, low loan-to-value ratio mortgages--making their credit ratings very high and the likelihood of their failing to repay very low.
As a result, most extant insurance securitizations have been heavily overcollateralized and also have required the purchase of third-party guarantees.
For advances, which are overcollateralized, capital requirements vary according to term: four years or less (7 basis points), four to seven years (20 basis points), seven to ten years (30 basis points), and over ten years (35 basis points).
29) The FHLB may advance money to even the most distressed bank without significant fear of loss because the advances are overcollateralized and backed by a super-priority lien on all of the bank's assets.
Section 311 of the draft bill would allow a member bank to extend credit to the bank's executive officers (1) in the form of a home equity credit line of up to $100,000, so long as the credit line is secured by the officer's primary residence, and (2) in an unlimited amount, so long as the loan is overcollateralized by readily marketable assets.