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Securitization is a structured finance process that distributes risk by aggregating debt instruments in a pool, then issues new
securities backed by the pool. The term “Securitisation” is derived from the fact that the form of financial instruments used to
obtain funds from the investors are securities. As a portfolio risk backed by amortizing cash flows – and unlike general
corporate debt – the credit quality of securitized debt is non-stationary due to changes in volatility that are time- and
structure-dependent. If the transaction is properly structured and the pool performs as expected, the credit risk of all
tranches of structured debt improves; if improperly structured, the affected tranches will experience dramatic credit
deterioration and loss.[1] All assets can be securitized so long as they are associated with cash flow. Hence, the securities
which are the outcome of Securitisation processes are termed asset-backed securities (ABS). From this perspective, DISCLAIMER
Securitisation could also be defined as a financial process leading to an issue of an ABS.
The information on this website is for informational
Securitisation often utilizes a special purpose vehicle (SPV), alternatively known as a special purpose entity (SPE) or special
purposes only and is not to be construed as legal
purpose company (SPC), reducing the risk of bankruptcy and thereby obtaining lower interest rates from potential lenders. A
advice.
credit derivative is also sometimes used to change the credit quality of the underlying portfolio so that it will be acceptable to
the final investors. Securitisation has evolved from its tentative beginnings in the late 1970s to a vital funding source with an
Read at your own risk. May be too intense for some
estimated outstanding of $10.24 trillion in the United States and $2.25 trillion in Europe as of the 2nd quarter of 2008. In
viewers. Do not read this site if you have high blood
2007, ABS issuance amounted to $3,455 billion in the US and $652 billion in Europe. [2]
pressure, heart disease, diabetes, thyroid disease,
From Wikipedia, the free encyclopedia asthma, glaucoma, or difficulty in urination.

A mortgage-backed security (MBS) is an asset-backed security or debt obligation that represents a claim on the cash Discontinue reading this website if any of the following
flows from mortgage loans, most commonly on residential property. occurs: itching, aching, vertigo, dizziness, ringing in
First, mortgage loans are purchased from banks, mortgage companies, and other originators. Then, these loans are your ears, vomiting, giddiness, aural or visual
assembled into pools. This is done by government agencies, government-sponsored enterprises, and private entities, which hallucinations, tingling in extremities, loss of balance or
coordination, slurred speech, temporary blindness,
may guarantee (securitize) them against risk of default associated with these mortgages. Mortgage-backed securities
represent claims on the principal and payments on the loans in the pool, through a process known as Securitization. These drowsiness, insomnia, profuse sweating, shivering, or
securities are usually sold as bonds, but financial innovation has created a variety of securities that derive their ultimate value heart palpitations.
from mortgage pools.
Readers should not act upon this information without
Most MBS’s are issued by the Government National Mortgage Association (Ginnie Mae), a U.S. government agency, or the seeking professional counsel.
Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac),
U.S. government-sponsored enterprises. Ginnie Mae, backed by the full faith and credit of the U.S. government, guarantees
that investors receive timely payments. Fannie Mae and Freddie Mac also provide certain guarantees and, while not backed
by the full faith and credit of the U.S. government, have special authority to borrow from the U.S. Treasury. Some private
institutions, such as brokerage firms, banks, and homebuilders, also securitize mortgages, known as “private-label” mortgage
securities.
This work is licensed under a Creative
Residential mortgages in the United States have the option to pay more than the required monthly payment (curtailment) or to Commons Attribution-NonCommercial
pay off the loan in its entirety (prepayment). Because curtailment and prepayment affect the remaining loan principal, the 3.0 Unported License.
monthly cash flow of an MBS is not known in advance, and therefore presents an additional risk to MBS investors.

Commercial mortgage-backed securities (CMBS) are secured by commercial and multifamily properties (such as apartment
buildings, retail or office properties, hotels, schools, industrial properties and other commercial sites). The properties of these
loans vary, with longer-term loans (5 years or longer) often being at fixed interest rates and having restrictions on
prepayment, while shorter-term loans (1–3 years) are usually at variable rates and freely pre-payable.

From Wikipedia, the free encyclopedia

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. CDOs securities are split into different risk classes, or
tranches, whereby “senior” tranches are considered the safest securities. Interest and principal payments are made in order of
seniority, so that junior tranches offer higher coupon payments (and interest rates) or lower prices to compensate for
additional default risk.

A few academics, analysts and investors such as Warren Buffett and the IMF‘s former chief economist Raghuram Rajan
warned that CDOs, other ABSs and other derivatives spread risk and uncertainty about the value of the underlying assets
more widely, rather than reduce risk through diversification. Following the onset of the 2007-2008 credit crunch, this view
has gained substantial credibility. Credit rating agencies failed to adequately account for large risks (like a nationwide collapse
of housing values) when rating CDOs and other ABSs.

Many CDOs are valued on a mark to market basis and thus have experienced substantial write-downs on the balance sheet
as their market value has collapsed.

From Wikipedia, the free encyclopedia

A credit default swap (CDS) is a swap contract in which the buyer of the CDS makes a series of payments to the seller
and, in exchange, receives a payoff if a credit instrument (typically a bond or loan) goes into default (fails to pay) [1]. Less
commonly, the credit event that triggers the payoff can be a company undergoing restructuring, bankruptcy, or even just
having its credit rating downgraded.

CDS contracts have been compared with insurance, because the buyer pays a premium and, in return, receives a sum of
money if one of the events specified in the contract occurs. However, there are a number of differences between CDS and
insurance, for example:
 The buyer of a CDS does not need to own the underlying security or other form of credit exposure; in fact the buyer
does not even have to suffer a loss from the default event.[2][3][4][5] In contrast, to purchase insurance, the insured is
generally expected to have an insurable interest such as owning a debt obligation;
the seller need not be a regulated entity;
the seller is not required to maintain any reserves to pay off buyers, although major CDS dealers are subject to bank
capital requirements;
insurers manage risk primarily by setting loss reserves based on the Law of large numbers, while dealers in CDS
manage risk primarily by means of offsetting CDS (hedging) with other dealers and transactions in underlying bond
markets;
in the United States CDS contracts are generally subject to mark to market accounting, introducing income statement
and balance sheet volatility that would not be present in an insurance contract;
Hedge Accounting may not be available under US Generally Accepted Accounting Principles (GAAP) unless the
requirements of FAS 133 are met. In practice this rarely happens.

While often described as insurance, credit default swaps differ from insurance in many significant ways. The cost of insurance
is based on actuarial analysis. CDSs are derivatives whose cost is determined by the Black-Scholes option pricing model.

Insurance contracts require the disclosure of all risks involved. CDSs have no such requirement, and, as we have seen in the
recent past, many of the risks are unknown or unknowable. Most significantly, unlike insurance companies, sellers of CDSs
are not required to maintain any capital reserves to guarantee payment of claims. In that respect, a CDS is insurance that
insures nothing.

Explanation of Securitization

Attachment A

Explanation of Securitization
Introduction
Securitization takes a commonplace, mundane transaction and makes very strange things happen.
This explanation will show that, in the case of a securitized mortgage note, there is no party who
has the lawful right to enforce a foreclosure, and the payments alleged to have been in default have,
in fact, been paid to the party to whom suc h payments were due.
Additionally, in the case of a securitized note, there are rules and restrictions that have been
imposed upon the purported debtor that are extrinsic to the note and mortgage * as executed by the
mortgagor and mortgagee, rendering the note and mortgage unenforceable.

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