Home Loan

Mortgages Rates Homeequityloanmorgages High Home Equity Loan Morgages Szh Css Get Php Page Index Home Equity Loan Morgages History and overview of securitization

Mortgages Rates Homeequityloanmorgages High Home Equity Loan Morgages Szh Css Get Php Page Index Home Equity Loan Morgages

  • Homeequityloanmorgages ynj Index csearchm Home Rates wsearch. Szh ysearchnsearchjsearchc High msearch searchasearchu Css a Page tyoungil.choi%40moodys.com+rd Homeequityloanmorgages h Szh u Get ig Szh lsearchasearchs Php Mortgages t Loan dsearchn Mortgages l High a%E6%8B%92%E7%B5%95%E8%AD%89%E8%A8%80s Home a Mortgages desearcheinurl:plus/guestbook.php Loan u Rates usearche Mortgages e Szh t Get rkoppartorp%20k%C3%A4rlekafiletype%3Aswf%20classesusan Rates e13trsearchysearchlis Rates Mortgages re Rates i Homeequityloanmorgages Szh a Homeequityloanmorgages d Homeequityloanmorgages re Mortgages esearchv Rates b Equity es, Php au Page o n Index osearchesearche Homeequityloanmorgages uifiletype%3Aswf%20classesusaysearchlsearcha Szh s Loan asearche Page u Php a Loan o Php t Mortgages 0searchpresearcht Morgages o Page l Mortgages Css B Loan . Szh M Rates nu Index asearcht Equity r Mortgages d Home h Php u Equity i Rates g 1337507579355_Roans,koppartorp%20k%C3%A4rlekstud High nt losearchnssearchadsearchequi Page m Loan nsearch l Morgages asearchev%C3%A6rdipapirudbud Page osearchp Home ie m61s Equity of Homeequityloanmorgages th Home tsearcher BSsearch searchnsearch Page he industry continues to look for new assets to securitize such as auto leases, small-business loans and "stranded cost recovery" ABS. (The latter refers to bonds backed by fees some newly deregulated utilities have won authority to include in future billings as an offset of previous investment.) How Securitization Works ABS and MBS represent an interest in the underlying pools of loans or other financial assets securitized by issuers who often also originate the assets. The fundamental goal of all securitization transactions is to isolate the financial assets supporting payments on the ABS and MBS. Isolation ensures payments associated with the securities are derived solely from the segregated pool of assets and not from the originator of the assets. By contrast, interest and principal payments on unsecuritized debt are often backed by the ability of the issuing company to generate sufficient cash to make the payments. Origination and Servicing The assets used in securitizations are created—or originated—in a number of ways. When a lender extends a loan or acquires another revenue-producing asset such as a lease, they are creating assets that can be securitized. Other assets, such as the balances due on credit card accounts or a corporation's accounts receivable can also be securitized. Because they initiate the securitization chain, the lenders, credit card companies and others are also called originators. Originators often retain a connection to their assets following a securitization by acting as a servicer—the agent collecting regular loan or lease payments and forwarding them to the SPV. Servicers are paid a fee for their work. Some originators contract with other organizations to perform the servicing function, or sell the servicing rights. Asset Transfer or the "True Sale" In the vast majority of securitizations, it is critical that the transfer of assets from the originator to the SPV is legally viewed as a sale, or "true sale." The proceeds of the securities are remitted to the originator as the purchase price for the assets. If the asset transfer is not a "true sale," investors are vulnerable to claims against the originator of the assets. The cash flows backing the securities or the assets themselves could be ruled a part of the originator's estate and used to satisfy creditors' claims if a true sale did not occur. Legally separating the assets also protects the originator. Investors can turn only to the SPV for payments due on the ABS and MBS, not to the general revenues of the originator. 4 zycnzj.com/
  • zycnzj.com/ www.zycnzj.com Special Purpose Vehicle and the Trust The SPV can either be a trust, corporation or form of partnership set up specifically to purchase the originator's assets and act as a conduit for the payment flows. Payments advanced by the originators are forwarded to investors according to the terms of the specific securities. In some securitizations, the SPV serves only to collect the assets which are then transferred to another entity—usually a trust—and repackaged into securities. Individuals are appointed to oversee the issuing SPV or trust and protect the investors' interests. The originator, however, is still considered the sponsor of the pool. Underwriter Underwriters—usually investment banks— serve as intermediaries between the issuer (the SPV or the trust) and investors. Typically, the underwriter will consult on how to structure the ABS and MBS based on the perception of investor demand. The underwriter may, for example, advise the SPV to issue different tranches each with specific characteristics attractive to different segments of the market. Underwriters also help determine whether to use their sales network to offer the securities to the public or to place them privately. Perhaps most importantly, underwriters assume the risk associated with buying an issue of bonds in its entirety and reselling it to investors. Credit Enhancement Credit enhancement is common in securitization transactions. Depending on the nature of the transaction and the type of assets, the securitization pool may need such support to attract investors. Enhancement or support can come from the assets themselves or from an external source. Examples of internal enhancements include subordinating one or more tranche, or portion, of the securities issued. This practice places the claims of one tranche over another. Any defaults affecting the securities must be absorbed by a subordinate tranche before the senior tranche is affected. Over-collateralization of asset pools is also used to enhance credit. This occurs when the amount of assets placed in a securitization pool exceeds the principal amount of bonds issued. External credit enhancements can include a surety bond or a letter of credit from a financial institution. Both options serve as guarantees that investors will receive the payments associated with the securities. GSEs enhance the credit of the MBS they issue by guaranteeing the timely repayment of principal and interest. Credit Rating Virtually all ABS and MBS are rated by independent rating agencies whose analyses is watched closely by investors as a guide to the credit quality of the securities. In almost all cases, rating agencies monitor the performance of the securities on an ongoing basis. 5 zycnzj.com/
  • zycnzj.com/ www.zycnzj.com Dealers Just as in other bond markets, dealers play an important role once an issue is initially distributed. For most bond investors, liquidity—the ability to easily buy or sell a security—is an important characteristic. By offering prices at which they will buy or sell bonds to the investment community, dealers provide this service. Bonds typically trade more actively closer to their date of issue. Because bond investors—usually institutional investors such as pension funds and insurance companies—hold most bonds to maturity, trading in bonds declines as they draw nearer to their stated maturity date. The issuance volume of a certain bond, a bond's credit rating and whether it was issued publicly or privately can also affect liquidity. All ABS and MBS are traded on the dealer-based, over-the-counter markets so liquidity depends in part on the ability and willingness of dealers to maintain an inventory, or make a market, in a certain bond. Benefits of Securitization Less Expensive, More Broadly Available Credit The public benefits of securitization are evident in a number of ways. Chief among these is the contribution of securitization to lower borrowing costs both for individuals and corporations. The existence of a liquid secondary market for home mortgages increases the availability of capital to make new home loans. Financial institutions that realize the full value of their loans immediately can turn around and re-deploy that capital in the form of a new loan. This is often the most efficient way to raise new funds in the capital markets and the savings are passed on to the borrower. Consumers other than homebuyers also benefit from lower borrowing costs. Securitization can lower a firm's financing costs as well. MBS and ABS are often designed to carry a higher credit rating than the originating firm would otherwise realize for other types of bonds. Higher credit ratings mean the security is less risky and translates into a lower interest rate for the originator as investors do not demand the same risk premium. The originator passes the savings on to the consumer in the form of lower lending rates. Securitization also aids in the geographic dispersion of capital to areas that may otherwise be deprived of credit options. Traditionally, depository institutions have provided credit in the areas where they accepted deposits. By securitizing loans, however, the lender generates capital for new loans that may come from a different location. This linkage to the capital markets broadens the range of regions where depository institutions obtain capital to provide credit. By subjecting the lending decisions of financial institutions to valuation by the capital markets, securitization also encourages an efficient allocation of capital. Financial institutions and others who securitize assets depend, of course, on investors. Investors seek an appropriate return based on a level of risk. If the asset pools are not of a 6 zycnzj.com/
  • zycnzj.com/ www.zycnzj.com sufficient quality, for example, investors will demand a higher interest rate as compensation. At its most basic level, securitization is the process of isolating risk and repackaging it for investors. This increases efficiency in the capital market by removing intermediary steps between investors and the risk they are assuming. A money manager, for example, may be interested in a mortgage-backed bond that pays interest and principle on a monthly basis, but not in the debt securities issued by the originator of the securitized assets. Securitization reallocates risk at many levels. By shifting the credit risk of the securitized assets (for a price) to ABS and MBS investors, financial institutions can reduce their own risk. As the risk level of an individual institution declines, so does systemic risk, or the risk faced by the financial system overall. More Options for Investors As noted above, investors benefit from the legal segregation of the securitized assets. The segregation protects the payment stream on the MBS and ABS from a bankruptcy or insolvency. Higher-rated securitized instruments generally offer higher yields than similar sovereign government issues. The actual size of this yield premium, the yield the securities pay in excess of similar government securities—will depend on the credit quality of the assets and the structure of the transaction. Pension funds—which comprise much of the market for MBS and ABS—pay close attention to this premium as they seek a wide variety of safe fixed income products with attractive yields. Insurance companies, money managers and other institutional investors with needs for fixed-income securities with specific features are also large ABS/MBS investors. The ability of issuers to vary the terms of securities backed by the same asset pool through different securitization techniques also makes MBS and ABS attractive to investors. In a sense, issuers can tailor the coupon, maturity and seniority of a security according to particular investor's needs. This flexibility not only boosts investor interest in ABS and MBS, but also contributes to more efficient capital markets by ensuring investors and money managers have access to the most appropriate securities. Flexibility for the Originator Securitization also benefits the financial institution or corporation that originates the securitized asset. Without securitization, a bank making a home loan usually would hold that loan on its books, recognizing revenue as payments are made over time. To realize the value of the loan immediately, the bank can sell the whole loan to another institution, though this is generally not economical unless the loan is very large. The more efficient option is to pool similar loans together, as discussed above, and enter into a securitization transaction. The process makes even more sense for originators with assets considered illiquid, such as equipment leases or the balance due on a credit card. The latter comprises an asset class called credit card receivables that account for approximately 20 percent of 7 zycnzj.com/
    • qMortgages Rates Homeequityloanmorgages High Home Equity Loan Morgages Szh Css Get Php Page Index Home Equity Loan Morgages History and overview of securitizationn Home Equity Loan Morgages nMortgages Rates Homeequityloanmorgages High Home Equity Loan Morgages Szh Css Get Php Page Index Home Equity Loan Morgages History and overview of securitizationj a Home Equity Loan Morgages Home Equity Loan Morgages