Securitization
Securitization is a financial process that involves the pooling of assets and their repackaging into marketable securities. It is a way of transforming illiquid assets into liquid securities that can be sold to investors. The process involves the creation of a special purpose vehicle (SPV) that purchases the assets from the originator and issues securities backed by the assets. The SPV is typically structured as a trust, and the securities are typically backed by the cash flows from the assets. The securities are then sold to investors in the secondary market.
History of Securitization
Securitization has been around since the early 1900s, when banks began pooling mortgages and selling them as securities. The process was further developed in the 1970s, when the government sponsored enterprises (GSEs) began securitizing mortgages. In the 1980s, the process was extended to other asset classes, such as auto loans, credit card receivables, and student loans. In the 1990s, the process was further developed with the introduction of collateralized debt obligations (CDOs). Today, securitization is used to securitize a wide range of assets, including commercial mortgages, aircraft leases, and intellectual property.
Comparison of Securitization Structures
| Structure | Asset Type | Risk |
|---|---|---|
| Mortgage-Backed Securities (MBS) | Mortgages | Low |
| Asset-Backed Securities (ABS) | Auto loans, credit card receivables, student loans | Medium |
| Collateralized Debt Obligations (CDOs) | Corporate bonds, mortgage-backed securities | High |
Summary
Securitization is a financial process that involves the pooling of assets and their repackaging into marketable securities. It is a way of transforming illiquid assets into liquid securities that can be sold to investors. The process involves the creation of a special purpose vehicle (SPV) that purchases the assets from the originator and issues securities backed by the assets. For more information about securitization, visit Investopedia, The Balance, and the Securities and Exchange Commission (SEC).
See Also
- Special Purpose Vehicle (SPV)
- Asset-Backed Securities (ABS)
- Collateralized Debt Obligations (CDOs)
- Mortgage-Backed Securities (MBS)
- Credit Default Swaps (CDS)
- Structured Investment Vehicles (SIVs)
- Real Estate Investment Trusts (REITs)
- Commercial Mortgage-Backed Securities (CMBS)
- Aircraft Lease-Backed Securities (ALBS)
- Intellectual Property-Backed Securities (IPBS)
