securitization


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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 ?
??Small business loans platform Funding Circle has announced it has closed its first asset-backed securitization (ABS) of US small business loans originated through its platform, the company said.
In the same way that our team practices law, we have tried to share practical, deal-oriented solutions to demystify the securitization process.
The reinvestment period for the term debt securitization ends in January 2023 and the Notes are scheduled to mature in January 2031.
BEIRUT: MedInvesment Bank, the financial arm of Bankmed, conducted a successful $25 million securitization for Lebanon's largest car rental company, the biggest such transaction in the Levant for a car rental business, the bank announced in a statement.
In a chance interview on Monday, 8990 Holdings chief operating officer Willie Uy said the first tranche of the securitization deal could happen in early 2018.
Speaking on the transaction, Mariusz Dabrowski, Chief Financial Officer, Home Credit India Finance Pvt Ltd., said, "The market for loan securitization transactions in India has been growing steadily over the last few years, both in volume and ticket size.
SPV which then takes necessary steps to complete the securitization transaction, on behalf of the originator, by issuing securities on the basis of the underlying receivables.
The Board of Directors of the FDIC approved a Notice of Proposed Rulemaking (NPR) to clarify the safe harbor protection in a conservatorship or receivership for financial assets transferred by an insured depository institution in connection with a securitization or participation.
Impact Funding LLC, a wholly-owned subsidiary of Impact Community Capital LLC, announced that it has successfully closed a $302 million securitization of affordable multifamily mortgage loans.
The financial engineering in the form of securitization that led to the success of the secondary mortgage market needs to be preserved, although it should also be reworked so that the externalization of unappreciated risk is reduced and the possibility of a large-scale financial meltdown of the kind experienced in 2008-2009 is not experienced again.
However, the FDIC said FASB's implementation of new accounting rules, FAS 166 and FAS 167, created "uncertainty for securitization participants."