What is securitization?
Securitization is the process of associating or associating various types of debt tools to sell tools for cash. Within the process, the combined value of the debt tool volume is used to convert the fund into a bond problem that can be purchased by investors. In general, the administrator has made an initial purchase of the volume and then sells a bond to one or more investors.
The type of debt tools involved in securitization may not be similar debts to be included in the volume. The securitization agreement may include such diverse debts such as mortgages, car loans or credit card debt. The main qualification for inclusion is in principle that debt tools included in the union will continue to generate revenue from payments received on the principle of debt and any interest that applies to the excellent balance.
The Mortgage Fund strategy of this type is relatively common. Banks, Fispo List of Nance and Investor Consortions are often involved in the Securitization process. For individual debtors, the transfer in the ownership of the debt may be completely transparent or require nothing but a change in the address where the payments are relocated. The securitization project generally does not lead to an increase in interest rates.
The use of the use of the securitization process to create a security supported by MBS or a mortgage is that the investment will generate a regular flow of income for a longer period of time. Investors receive this cash flow of payments for interest and principal by debtors. MBS may include both residential and commercial mortgages.
As with any safety supported asset, there is a degree of risk for the investor. Because bond problems are supported by debt tools, there is always a chance that one non -debtors will be default loans, mortgages or credit card debt. However, investors who regularly include investment in securitization within their business practicesUsually, steps to minimize the potential loss of the default, sometimes, including some kind of assurance by the administrator under conditions that apply to the sale. This can help minimize the chances of possession of illicit assets and cause loss of business.