Introduction to Securitization

KEY POINTS OF THE CHAPTER

• Asset securitizations are classified as existing asset securitizations and future flow securitizations.

• In an existing asset securitization, the cash flow from the asset exists and there is an existing claim to value.

• In a future flow securitization, there is no existing claim or contractual right to a cash flow; such contractual rights will be created in the future.

• The goal of a securitization transaction may be either to transfer assets for cash or simply strip the risk inherent in credit assets and transfer the commensurate risk.

• In a cash securitization, the goal is to transfer the risk for cash.

• In a synthetic securitization the focus is on risk transfer.

• A basis for making a distinction between asset classes in a securitization is according to the nature of the obligors in the pool: retail versus whole obligations.

• The distinction between retail and wholesale loans is not merely having to do with the size of the funding but also the purpose of the loan.

• In the case of business loans, oftentimes the purpose of the loan is to acquire an asset which is a source of cash flows or cash savings.

• Retail loans are typically personal loans.

• Securitization of corporate or business loans are referred to as collateralized debt obligations.

• The main types of existing asset securitizations are mortgage-backed and asset-backed pools.

• In general, mortgage-backed loan pools consist of mortgage loans and asset-backed securities comprise ...