Originators and Investors of the Asset Securitization Market
The story of the nearly four-decade long and successful development of the asset securitization market was written mainly by a great many originators of underlying assets and a still far larger number of investors.1 They cooperated to provide financing for consumers and businesses that created value and raised living standards. Their cooperation was guided by the invisible hand in that the originators and the investors were driven by self-interest to participate in the asset securitization market.
This chapter discusses the raison d'être of asset securitization: the originators' need to raise funds efficiently in the capital market to finance their loan originations and the investors' varying demands for diversified investment products to earn attractive returns for their funds.
Efficient Financing for Originators with Asset Securitization
As mentioned at the outset of this book, one critical participant in the process of asset securitization is the loan originator. This is obvious because the initial reason for securitization is to enable the originator to secure funding efficiently in the capital market to finance the origination of loans. To secure the funding, the originator first sets up an SPE. The originator then sells to the SPE its newly originated loans (this could also be existing loans in its portfolio). To finance the purchase of the loans from the originator, the SPE issues in the capital market ...