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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