Introduction to Securitization

KEY POINTS OF THE CHAPTER

• The creation of agency collateral mortgage obligations (CMOs) is different in its motivation than for corporate entities using asset securitization.

• For corporations seeking funding using receivables and loans, securitization provides access to the capital markets and is a funding tool and hence the basic structuring elements differ from agency deals and the considerations in the securitization process.

• While there have been many asset types that have been securitized and therefore variables that affect the structuring of each asset type, there are many variables that are common to traditional securitizations.

• Factors that are important structuring considerations are (1) identification of the asset pool; (2) selection of the assets; (3) identification of the risks; (4) determination of the sources and size of credit support; (5) determination of the bond classes, (6) time tranching of bond classes; (6) selecting the pay down structure of the bond classes; (7) determination of the amount and sources for liquidity support; (8) determination if any prepayment protection is needed; and (9) inclusion of structural protection triggers.

• The first consideration in a securitization is the identification of the asset that are to be securitized.

• The following four factors are considered in identifying the asset pool: (1) the size of the pool is fixed; (2) the type of assets to be securitized must be addressed taking into account the objective of the ...