What is security supported by asset?
Security supported by an asset is security with a value that is provided by a group of assets. These assets may include outstanding car loans, credit card debt or student loans. Securities supported by a mortgage can be considered as a form of security supported by asset, but usually discussed separately. Like other securities, securities supported by asset can be purchased, sell and trade on financial markets who use the movement of securities to generate income. The original creditor combines a group of assets such as car loans, and then sells shares from the pool as securities. In some cases, the creditor can use what is called a vehicle with a special purpose, convert assets from their books and allow a special special -purpose vehicle to manage securitization and sale. The bank receives funds when selling securities supported by asset.
The idea of safety supported by asset is diversified by the risk. HowlBy boosting a large group of assets and securitization, creditors can reduce the risk of losses in this fund. For example, if one person fails to repay a student loan, it will be absorbed by a larger pool. Banks can also mix assets with different debt ratings and associate poorly evaluated debt with a highly rated debt to make the debt less risks. The use of securities supported by active also allows banks to create trading materials from assets that usually cannot be traded very easily.
One of the advantages of selling security supported asset is that it releases creditors to provide more loans, which maintains the credit market running. However, this may also be problematic, because creditors may not be so careful about loans when they know they will be packed and securitized later. Rather than viewing individual credit risks, banks can look at overall trends, potenCile to create bad loans.
The practice of creating securities supported by assets has been variable and criticized depending on the economic market. It is important to distinguish between different types. Mortgage loans tend to make, for example, more risky support and in the financial crisis in 2008, securities supported by mortgages were involved. On the other hand, there may be assets such as car loans and student loans, very reliable artists and create stable intake with a relatively low risk. In all cases, however, the responsibility tends to be transferred from the original creditor with security supported by asset, which may encourage ruthless credit behavior.