Mohit Sewak

TERIM Model of Securitization

How is Securitization Done ?

Transfer

As we discussed earlier the securtization initially started with the sole purpose of waving the loans (asset backed mortgaged loans) from the balance sheets of the bank where these loans were originated. Also the bank need to be isolated from any risk arising from the failure of these loans. Also the asset that are linked with this loan need to be backed up against any future claims that comes on the bank. For this purpose a Special Purpose Vehicle (SPV) is created, and these loans are TRANSFERRED from the balance sheets of the bank to that of the SPV’s.

For more information on this step read the post: – TERIM Step 1: Transfer.

Enhance

These asset backed loans after being detached from their originating bank, become very risky at this stage, and hence are not investment worthy. So in order to  reduce the risk associated with them they have to be ENHANCED. Enhancement is like an Insurance in which you pay a premium to an Insurance firm for covering any damages that arise due to the failure of these loans.

For more information on this step read the post: – TERIM Step 2: Enhance.

Rate

In order to recognize these loans as investment worthy, they require to a credit rating above B (AAA to A). After getting Insurance/ Enhancement for these loans in the above step we have reduced some risks from them, and now we get them rated by a rating agency like Moody’s/ S&P etc. Only after they rate them as AAA, AA, A can they be securitized.

For more information on this step read the post: – TERIM Step 3: Rate.

Issue

We have carried out so many procedures just to securitize out asset backed loans (to get asset backed securities from them). This is finally the step where Securities are ISSUED from the above rated (& enhanced) mortgage backed loans to the the investors. This although sounds simple but is a aggregation of several other steps which will be covered in the dedicated post (link below).

For more information on this step read the post: – TERIM Step 4: Issue.

Manage

If you have already gone through the detailed procedure involved in the above 4 steps, you must have realized that several routine steps are to be carried out every year for the maintainence of the original asset backed loans to ensure that creditors pay their investments on time, and the same is being transferred into the accounts of the concerned parties. Despite after so many steps the loan has been fragmented into numerous securities, some body is required to carry out the above stated and many other steps till the loan does not reach maturity. In short somebody is required to MANAGE these securities and the original loan

For more information on this step read the post: – TERIM Step 5: Manage

.

Please Share this article With Your Friends and Family On:

What is Securitization?

.

Reasons for and advantages of Securitization:

.

.

.

Other Posts Related to Securitization:

.

1. What is Securitization?

2. What are CDO/CDS/CLO/ABS ?

3. What is a SPV/SPT/ SPE/SPC ?

4. TERIM model of Securitization.

5. Advantages and Disadvantages of Securitization for different Parties ?

6. How Securitization led to the Sub Prime Crisis ?

7. What are CDO² (CDO Squares), and CDO³ (CDO Cubes) ?

8. What is Tranching ?

9. Some Global facts and figures related to Securtization.

10. Problems with Structured Finance.

.

.

.

.

.

.

Please Share this article With Your Friends and Family On:

What is a Collateralized Debt Security (CDS) ?

Going by the dictionary meanings, Collateralized Debt Security or a CDS, should have meant any loan, or security, taken against a collateral (anything to back up a loan, for eg. an asset as a mortgage).

But in structured finance (a sector of finance that was created to help transfer risk using complex legal and corporate entities), we take this definition a step forward to call any security formed/ derived (these come under financial derivatives) as a result of securitization of such underlying mortgage backed loans/ debts/ fixed-income assets as CDS’s.
.

.

Therefore the technical definition of CDSs would be:

.

Collateralized Debt Securities (CDSs) are a type of structured asset-backed security (ABS) whose value and payments are derived from a portfolio of fixed-income underlying assets.

.

.

Some other names by which these securities are called are (There can be minute or no differences among such terms which we will be discussing later, but broadly speaking they all mean the same thing):

.

Other Posts Related to Securitization:

.

1. What is Securitization?

2. What are CDO/CDS/CLO/ABS ?

3. What is a SPV/SPT/ SPE/SPC ?

4. TERIM model of Securitization.

5. Advantages and Disadvantages of Securitization for different Parties ?

6. How Securitization led to the Sub Prime Crisis ?

7. What are CDO² (CDO Squares), and CDO³ (CDO Cubes) ?

8. What is Tranching ?

9. Some Global facts and figures related to Securtization.

10. Problems with Structured Finance.

.

.

.

.

.

.

Please Share this article With Your Friends and Family On:

What is an Asset Backed Obligation (ABO) ?

Going by the dictionary meanings, Asset-Backed Obligation or an ABO, should have meant any loan, or security taken against any asset kept as a collateral (anything to back up a loan, for eg. a mortgage). But in structured finance (a sector of finance that was created to help transfer risk using complex legal and corporate entities), we take this definition a step forward to call any security formed/ derived (these come under financial derivatives) as a result of securitization of such underlying mortgage backed loans/ debts/ fixed-income assets as ABO’s.
.

.

Therefore the technical definition of an ABO would be:

.

An Asset-Backed Obligation is a security whose value and income payments are derived from and collateralized (or “backed”) by a specified pool of underlying assets.

This pool of assets is typically a group of small and illiquid assets that are unable to be sold individually.

.

.

Some other names by which these securities are called are (There can be minute or no differences among such terms which we will be discussing later, but broadly speaking they all mean the same thing):

.

Other Posts Related to Securitization:

.

1. What is Securitization?

2. What are CDO/CDS/CLO/ABS ?

3. What is a SPV/SPT/ SPE/SPC ?

4. TERIM model of Securitization.

5. Advantages and Disadvantages of Securitization for different Parties ?

6. How Securitization led to the Sub Prime Crisis ?

7. What are CDO² (CDO Squares), and CDO³ (CDO Cubes) ?

8. What is Tranching ?

9. Some Global facts and figures related to Securtization.

10. Problems with Structured Finance.

.

.

.

.

.

.

Please Share this article With Your Friends and Family On:

What is a Collateralized Loan Obligation (CLO) ?

Going by the dictionary meanings, Collateralized Loan Obligations or a CLO, should have meant any loan taken against any collateral (anything to back up a loan, for eg. an asset as a mortgage).

But in structured finance (a sector of finance that was created to help transfer risk using complex legal and corporate entities), we take this definition a step forward to call any security formed/ derived (these come under financial derivatives) as a result of securitization of such underlying mortgage backed loans/ debts/ fixed-income assets as CLO’s.
.

Therefore the technical definition of CLOs would be:

Collateralized Loan Obligations (CLOs) are a form of securitization where payments from multiple middle sized and large business loans are pooled together and passed on to different classes of owners in various tranches.

.

Some other names by which these securities are called are (There can be minute or no differences among such terms which we will be discussing later, but broadly speaking they all mean the same thing):

.

Other Posts Related to Securitization:

.

1. What is Securitization?

2. What are CDO/CDS/CLO/ABS ?

3. What is a SPV/SPT/ SPE/SPC ?

4. TERIM model of Securitization.

5. Advantages and Disadvantages of Securitization for different Parties ?

6. How Securitization led to the Sub Prime Crisis ?

7. What are CDO² (CDO Squares), and CDO³ (CDO Cubes) ?

8. What is Tranching ?

9. Some Global facts and figures related to Securtization.

10. Problems with Structured Finance.

.

.

.

.

.

.

Please Share this article With Your Friends and Family On:

What is an Asset Backed Security (ABS) ?

Going by the dictionary meanings, Asset-Backed Security or an ABS, should have meant any loan, or security taken against any asset kept as a collateral (anything to back up a loan, for eg.  a mortgage). But in structured finance (a sector of finance that was created to help transfer risk using complex legal and corporate entities), we take this definition a step forward to call any security formed/ derived (these come under financial derivatives) as a result of securitization of such underlying mortgage backed loans/ debts/ fixed-income assets as ABS’s.
.

.

Therefore the technical definition of an ABS would be:

.

An Asset-Backed Security is a security whose value and income payments are derived from and collateralized (or “backed”) by a specified pool of underlying assets.

This pool of assets is typically a group of small and illiquid assets that are unable to be sold individually.

.

.

Some other names by which these securities are called are (There can be minute or no differences among such terms which we will be discussing later, but broadly speaking they all mean the same thing):

.

Other Posts Related to Securitization:

.

1. What is Securitization?

2. What are CDO/CDS/CLO/ABS ?

3. What is a SPV/SPT/ SPE/SPC ?

4. TERIM model of Securitization.

5. Advantages and Disadvantages of Securitization for different Parties ?

6. How Securitization led to the Sub Prime Crisis ?

7. What are CDO² (CDO Squares), and CDO³ (CDO Cubes) ?

8. What is Tranching ?

9. Some Global facts and figures related to Securtization.

10. Problems with Structured Finance.

.

.

.

.

.

.

Please Share this article With Your Friends and Family On:

What is a Collateralized Debt Obligation (CDO) ?

Going by the dictionary meanings, Collateralized Debt Obligations or a CDO, should have meant any loan taken against any collateral (anything to back up a loan, for eg. an asset as a mortgage).

But in structured finance (a sector of finance that was created to help transfer risk using complex legal and corporate entities), we take this definition a step forward to call any security formed/ derived (these come under financial derivatives) as a result of securitization of such underlying mortgage backed loans/ debts/ fixed-income assets as CDO’s.
.

Therefore the technical definition of CDOs would be:

Collateralized debt obligations (CDOs) are a type of structured asset-backed security (ABS) whose value and payments are derived from a portfolio of fixed-income underlying assets.

.

Some other names by which these securities are called are (There can be minute or no differences among such terms which we will be discussing later, but broadly speaking they all mean the same thing):

.

Other Posts Related to Securitization:

.

1. What is Securitization?

2. What are CDO/CDS/CLO/ABS ?

3. What is a SPV/SPT/ SPE/SPC ?

4. TERIM model of Securitization.

5. Advantages and Disadvantages of Securitization for different Parties ?

6. How Securitization led to the Sub Prime Crisis ?

7. What are CDO² (CDO Squares), and CDO³ (CDO Cubes) ?

8. What is Tranching ?

9. Some Global facts and figures related to Securtization.

10. Problems with Structured Finance.

.

.

.

.

.

.

Please Share this article With Your Friends and Family On: