Post on 22-Nov-2014
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What is Securitization?
Securitization is the process conversion of receivables and cash flow generated from a
collection or pool of financial assets like mortgage loans, auto loans, credit card
receivables etc into the marketable securities. ”
“
Asset securitization is the process whereby interests in loans and receivables are packaged
and sold in the form of ABS asset backed securities.
Asset Securitization
“ ”
Parties involved in securitization
Typical Securitization Structure
Must Know Concepts in securitization
Asset back securities (ABS)
Collateralized debt obligation
Mortgage-backed securities (MBS)
Collateralized Mortgage Obligations
Asset back securities (ABS)
Asset-backed securities are the bonds or notes backed by some financial assets. These assets consist of receivables such as mortgage loans,
credit card receivables, auto loans, manufactured-housing contracts and home-
equity loans.
Collateralized debt obligation
It is an investment grade security backed by a pool of various other securities.
Mortgage-backed securities (MBS)
Mortgage-backed securities are bonds that are backed by pools of mortgage loans. Examples Mortgage papers, house papers,
land and Property papers.
Collateralized Mortgage Obligations (CMO)
The CMO is a multiclass bond backed by a pool of mortgage pass-through or mortgage loans.
Difference between MBS and ABS
No. MBS ABS
1 The Duration for
trading is more than 15
years.
The Duration for
trading is up to 5 years.
2 Securities: Mortgage
papers, house papers,
land and Property
papers.
Securities: Credit card
papers, Share
certificates, Auto or
vehicle papers.
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