StudentShare solutions
Triangle menu

Asset Securitization - Essay Example

Nobody downloaded yet

Extract of sample
Asset Securitization

In order to attract investors, bankers initially develop the investment vehicle that isolated defined mortgage pools, segmented the credit risk, and structured the cash flows from the underlying loans. Although it took several years to develop an efficient mortgage structure. In the early 1980s, the current shape of securitization was introduced into capital markets in which payments were pooled and used as collateral for securities issues. U.S government played a very pivotal role by creating agencies whose work is to ensure the securities, payment and interest (Comptroller, 1997, p 02). In the late 1980s, companies such as Citibank, General Motors Acceptance Corporation, Marine Midland Bank, Chrysler Corporation, and Ford Motor Company entered into the securitization market and raise billions of dollars through off-balance-sheet financing and in years to come, new issuance of consumer asset-backed securities averaged about $50 billion annually.
Securitization works in manner that seller provides goods or services to its valued customer in manner that payment is to be received in later days so he/she creates an asset then this pool of asset is sold to SPV (issuer) in order to acquire the particular asset and issuing a debt instrument to investor. Now this debt instrument is traded in secondary market in order to attract different rating agencies (Comptroller, 1997, p 06). This approach is quite fruitful for the seller because highly-rated debt instruments attract the finest prices. In addition, the credit rating of the debt instrument is very much dependent on the quality of assets that are securitized with in the pool. Investment banker provides protection, if there is any loss arises (Comptroller, 1997, p 06). The factor of liquidity ensures that SPV will always meet the paid its obligations on time. The cash which received from customer with respect to underlying assets passed through investor in the shape of repay the (interest and principal) amounts outstanding and then he/she is liable to issue the debt instruments.

The pros for issuer are stated below:
The process of securitization reduces the funding cost like a company whose ranked is BB but AAA cash flows makes the ability to borrow at AAA rates. Remember the difference between AAA and BB debts are hundred basis points.
The firm which has lower capital due to any reason like legal, regulatory etc may impose a barrier or limit at which the ...Show more


Securitization defined as "the process of pooling a group of mortgages or loans into one group and then issuing new debt securities and divided that pool into portions that can be sold as securities in the secondary market." There are different types of securitization which varies upon the type of security provided; one type is mortgage-backed securities(MBS) in which debts are backed with mortgages and the other type is an asset-backed security (ABS) in which the debt issued is backed by the underlying assets backed up by other types of loans.
Author : flossie45
Asset Securitization essay example
Read Text Preview
Save Your Time for More Important Things
Let us write or edit the essay on your topic
"Asset Securitization"
with a personal 20% discount.
Grab the best paper

Check these samples - they also fit your topic

Role of securitization and structured finance products in the recent banking and financial crisis
CDS – Credit Default Swaps 6 5. Why economic models failed? 8 6. Case Reference – Perspective of HSBC Bank 8 7. Conclusion 9 8. References 11 1. Introduction Financial institutions cater to the needs of different types of customers by providing relevant financial services.
7 pages (1750 words) Essay
Law Essay - Securitization
Securitization accommodates all financial assets and promotes liquidity hence allowing the owners to sell the assets more easily1. Securitization largely supports the financial strength and stability of electric distribution utilities by availing the capital to purchase and make develop investments in utility infrastructure.
4 pages (1000 words) Essay
Financial services ( Derivatives )
The sum of such payment is to be quantified at a future date which is based on index, the value of an asset or rate at that future date. The rate, asset or index, which decides the amount to be paid, is referred as the derivative’s underlying (Cox, 2007, p.77).
7 pages (1750 words) Essay
Land and property Develeopment Diary of the 'credit crunch'
(Even in good times, bankers prefer to lend money only to those who do not need it.) Risk- related restriction in bank lending has been widespread in Southeast Asia throughout 1998. The flight to quality takes the form of a dash to purchase government bonds, believed to be risk-free.
7 pages (1750 words) Essay
Subprime Mortgage Crisis
Also know as the "credit crunch", this financial contagion has now almost affected every market which is economically integrated and interdependent with the rest of the world. The crisis began with the bursting of the housing bubble which then by chain reaction affected every other industry due to this strong interdependence among countries and economies.
8 pages (2000 words) Essay
What are the main determinants of bank failure
In this document, specified red flags and other identifiers of problem banks. One category of red flags is Rapid Growth /Aggressive Growth Strategies, as such may indicate the high level of risk assumed in banking operations. Some indications of this may be:
4 pages (1000 words) Essay
Global Challenges: Analysis of the global challenges and economic situation in Argentina
The country is also a founding member of United Nations and it is also among the G-20 major economies (Wikipedia 2011) This paper aims to analyse the current economic environment in Argentina, including GDP, Inflation, Industrial
8 pages (2000 words) Essay
Securities activities of banks class
en prey of the recession and collapsed.  Governments have been forced to bailout a number of financial institutions to save them from collapse, but despite these short-term measures to save them from the harsh effects of global financial crisis, many organizations and banks
10 pages (2500 words) Essay
Financial services ( Derivatives )
In United Kingdom, derivatives can be traded by two methods: either through an over-the-counter (OTC) or organised exchange. The exchange traded derivatives
7 pages (1750 words) Essay
Financial Markets and Instruments
he resurgence of securitization is low interest rates and the availability of funding which have encouraged finance entities to refinance their high cost debts and fund their growth initiatives (Kothari, 578). Securitization has also been resurgent in the past year because it
1 pages (250 words) Essay
Hire a pro to write
a paper under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Your email
Comments (0)
Click to create a comment
Contact Us