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Securitization - Securitization marketsThis protects investors from a degree of risk, making the securitization more attractive Wall Street Reform and Consumer Protection Act - Subtitle D Improvements to the Asset-Backed Securitization Process* help ensure high quality underwriting standards for the securitizers and originators of assets that are securitized or available for securitization Master Settlement Agreement - SecuritizationThey are a form of securitization security - SecuritizationThe process of securitization is complicated and depends greatly on the jurisdiction within which the process is conducted. Among other things, securitization distributes risk and permits investors to choose different levels of investment and risk.Lemke, Lins and Picard, Mortgage-Backed Securities, Chapter 1 (Thomson West, 2013 ed.). The basics are: security - SecuritizationThese securitization trusts may be structured by government-sponsored enterprises as well as by private entities that may offer credit enhancement features to mitigate the risk of prepayment and default associated with these mortgages security - SecuritizationIn the United States, the most common securitization trusts are sponsored by Fannie Mae and Freddie Mac, US government-sponsored enterprises finance - SecuritizationSecuritization is the method utilized by participants of structured finance to create the pools of assets that are used in the creation of the end product financial instruments.'Securitization' is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations and selling said consolidated debt as bonds, pass-through securities, or collateralized mortgage obligation (CMOs), to various investors mortgage crisis.Michael Simkovic, [ Competition and Crisis in Mortgage Securitization] Off-balance sheet securitizations are believed to have played a large role in the high leverage level of U.S, [ Whole Business Securitization in Emerging Markets], Duke Journal of Comparative and International Law 12:2 (2002). - HistoryExamples of securitization can be found at least as far back as the 18th century.[ Dutch Securities for American Land Speculation in the Late-Eighteenth Century], Rik Frehen, K - HistoryIn February 1970, the U.S. Department of Housing and Urban Development created the first modern residential mortgage-backed security. The Government National Mortgage Association (GNMA or Ginnie Mae) sold securities backed by a portfolio of mortgage loans.Asset-Backed securities in Germany: the sale and Securitization of loans by German credit institutions, Deutsche Bundesbank Monthly Report July, 1997. - HistoryA pool of assets second only to mortgages in volume, auto loans were a good match for structured finance; their maturities, considerably shorter than those of mortgages, made the timing of cash flows more predictable, and their long statistical histories of performance gave investors confidence.Asset Securitization Comptroller's Handbook, Comptroller of the Currency Administrator of National Banks, 1997 - HistoryThis early auto loan deal was a $60 million securitization originated by Marine Midland Bank and securitised in 1985 by the Certificate for Automobile Receivables Trust (CARS, 1985-1).Hearing before the U.S. House subcommittee on Policy Research and Insurance in Asset Securitization and Secondary Markets (July 31, 1991), page 13 - History Key areas of activity in the broad area of Alternative Risk Transfer include catastrophe bonds, Life Insurance Securitization and Reinsurance Sidecars. - HistoryThe first public Securitization of Community Reinvestment Act (CRA) loans started in 1997. CRA loans are loans targeted to low and moderate income borrowers and neighborhoods.[,,134_307%5E306,00.html Wachovia Press Releases] - HistoryModern securitization took off in the late 1990s or early 2000s, thanks to the innovative structures implemented across the asset classes, such as UK Mortgage Master Trusts (concept imported from the US Credit Cards), Insurance-backed transaction (such as the ones implemented by the insurance securitization guru Emmanuel Issanchou) or even more esoteric asset classes (for example securitization of lottery receivables). - HistoryDone Deal: The First Securitization Of Rooftop Solar Assets Forbes - URL: - Credit enhancement and tranchingSome securitizations use external credit enhancement provided by third parties, such as surety bonds and parental guaranty|guarantees (although this may introduce a conflict of interest). - Repayment structuresFully amortizing securitizations are generally collateralised by fully amortizing assets such as home equity loans, auto loans, and student loans - Repayment structuresAfter a predetermined revolving period, during which only interest payments are made, these securitizations attempt to return principal to investors in a series of defined periodic payments, usually within a year - Repayment structuresThe most common bullet structure is called the 'soft bullet', meaning that the final bullet payment is not guaranteed on the expected maturity date; however, the majority of these securitizations are paid on time - Repayment structuresSecuritizations are often structured as a sequential pay bond, paid off in a sequential manner based on maturity. This means that the first tranche, which may have a one-year average life, will receive all principal payments until it is retired; then the second tranche begins to receive principal, and so forth. Pro rata bond structures pay each tranche a proportionate share of principal throughout the life of the security. - Structural risks and misincentives Originators (e.g. of mortgages) have less incentive towards credit quality and greater incentive towards loan volume since they do not bear the long-term risk of the assets they have created and may simply profit by the fees associated with origination and securitization. - Master trustA second risk is that the total investor interests and the seller's interest are limited to receivables generated by the credit cards, but the seller (originator) owns the accounts. This can cause issues with how the seller controls the terms and conditions of the accounts. Typically to solve this, there is language written into the securitization to protect the investors and potential receivables. - Grantor trust Grantor trusts are very similar to pass-through trusts used in the earlier days of securitization - Advantages to issuer'Reduces funding costs': Through securitization, a company rated BB but with AAA worthy cash flow would be able to borrow at possibly AAA rates - Advantages to issuer'Reduces asset-liability mismatch': Depending on the structure chosen, securitization can offer perfect matched funding by eliminating funding exposure in terms of both bond duration|duration and pricing basis.The Handbook of Asset-Backed Securities, Jess Lederman, 1990. Essentially, in most banks and finance companies, the liability book or the funding is from borrowings. This often comes at a high cost. Securitization allows such banks and finance companies to create a self-funded asset book. - Advantages to issuer Two good examples of this are catastrophe bonds and Entertainment Sec


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