Introduction to Securitization

COLLATERAL CLASSES: MAIN TYPES

The main types of existing asset securitizations (the same collateral classes may, arguably, be securitized synthetically as well) are mortgage-backed and asset-backed pools. In general, mortgage-backed loan pools consist of mortgage loans and asset-backed securities comprise all other existing asset transactions. The resulting securities are referred to as mortgage-backed securities and asset-backed securities , respectively. Mortgage-backed securities make a distinct class since the loans have the backing of real property.

There are some products that are classified as asset-backed securities even though they contain residential mortgage loans. Specifically, home equity loans, more specified, closed-end home equity loans, are loans to individuals with impaired credit and/or high loan-to-value ratios to purchase a home. These individuals are referred to as subprime borrowers. Despite the fact that closed-end home equity loans are mortgage loans, they are referred to as mortgage-related asset-backed securities and treated as part of the asset-backed securities market.

In Figure 8.2, we have taken a third type of transactions—those backed by operating revenues. This is a unique type, mostly used for financing acquisitions. Here, the collateral is the residual profits or operating surplus of an entity, hence the name operating revenues securitization. An operating revenues securitization, for obvious reasons, cannot use a true sale structure because ...