Description
what is securitisation, process of securitisation, parties to securitisation. It also explains what are asset backed securities, reverse mortgage loans.
Content
? Introduction. ? Securitization. ? Securitization process. ? Parties of securitization. ? Credit enhancement. ? External Credit enhancement. ? Internal Credit enhancement. ? ABS. ? MBS. ? RML.
Securitisation
? Securitisation is the process of pooling and
repackaging of homogeneous illiquid financial assets into marketable securities that can be sold to investors.
Motivation for Securitization
? Reducing the Size of the B/S.
? Improving Return on Capital. ? Less capital requirement to meet capital requirement
standards. ? Allows poorly rated firms to participate in certain segments of the capital market that are otherwise unavailable to them.
Securitisation process
? ssal
obligor Ancillary service provider
S.P.V.
originato r Rating agency
investor
structurer
Parties to securitisation
? Originator: It is the entity on whose books the assets to
be securitized exist. ? S.P.V.: It is the entity which would buy the assets to be securitized from the originator. ? Obligors: are the borrowers of the original loan. ? Structurer: Investment bank that bring together all the parties to a securitization deal.
Credit Enhancement
? Credit enhancement refers to the various means that
attempt to buffer investors against losses on the asset collateralising their investment. ? The credit enhancement are often essential to secure a high level of credit rating.
External Credit Enhancement
? It include insurance ,third party guarantee and letter
credit. ? Insurance-Full insurance is provided against the losses on the asset.The issuer of insurance looks to an initial premium or other support to cover credit losses. ? Third Party Guarantee-this method involve a limited /full guarantee by third party to cover losses. ? Letter of credit-For structures with credit rating below the level sought for the issue.It charges very nominal amount.
Internal Credit Enhancement.
? Credit tranching-As SPV issues two or more tranches
of securities and establishes a predetermined priority in their servicing. ? Over collateralization –the originator set aside asset in access of the collateral required to be assigned to the SPV. The cash flow from these assets must first meet any overdue payments in the main pool. ? Cash collateral-these works same as the over collateralization.
Internal credit Enhancement
? Spread account –the difference between yield on the
asset and the yield to investor from the securities is called spread account or excess spread.
ABS
? ABS are securities in which investors rely on the
performance of the asset that collateralize the securities.
? E.g. are credit card receivables .
Asset-Backed Securities
? ABS derive their cash flows from a pool of underlying
assets
? ?
?
?
MBS = mortgage backed securities CARS = certificates for automobile receivables CARDS = certificates for amortizing revolving debts HELS = home equity loan securities
Asset-Backed Securities
? The underlying assets generate cash flows of principal
and interest which can be repackaged and sold to investors.
Fixed income assets Principal Asset-backed securities
Interest
Asset-Backed Securities
? In ABS, the underlying assets are collected into a pool. ? Pool assets are standardized.
? The asset pool is placed in trust. ? Claims on the cash flows generated by the asset pool are
structured:
? ?
Pass-through structures. Multi-class structures.
? Securities representing these claims are sold.
MBS
? Backed by mortgage loans.
? A mortgage loan is a loan secured by real estate ? The “mortgage” is a security agreement that gives the lender the right to seize by foreclosure the property securing the loan if the borrower defaults ? Mortgage loans are originated by banks and other
financial firms. ? Once originated, a mortgage loan may be held, sold to an investor for cash, or pooled and securitized.
Mortgage Loan Types
? Fixed-rate, level pay (“plain vanilla”)
? ? ?
?
Term of loan is fixed (30 years is common in US) Contract rate of interest is fixed for the life of the loan. Payments (usually monthly) are constant for the term of the loan The payments fully amortize the loan.
Reverse Mortgage Loans.
? Reverse mortgage loans seeks to monetize the house as
an asset specifically the owners equity in the house.
? The scheme involves the senior citizen mortgaging the
house property to a lender who then makes periodic payments to the borrowers during his life time.
? The Borrowers are not required to service the loan
during his life time and therefore and does not make monthly repayments.
Guidelines
? RML are to be Extended by primary lending
institution registered with NHB.
? Borrowers should be Above 60 years of age. ? Borrowers should be owner of residential property
located in india.
Determination of eligible amount of loan
Age
? 60-70. ? 71-75. ? 76-80. ? above 80.
Loan as proportion of Assessed value of property.
? 45%. ? 50%. ? 55%. ? 60%.
doc_872342729.pptx
what is securitisation, process of securitisation, parties to securitisation. It also explains what are asset backed securities, reverse mortgage loans.
Content
? Introduction. ? Securitization. ? Securitization process. ? Parties of securitization. ? Credit enhancement. ? External Credit enhancement. ? Internal Credit enhancement. ? ABS. ? MBS. ? RML.
Securitisation
? Securitisation is the process of pooling and
repackaging of homogeneous illiquid financial assets into marketable securities that can be sold to investors.
Motivation for Securitization
? Reducing the Size of the B/S.
? Improving Return on Capital. ? Less capital requirement to meet capital requirement
standards. ? Allows poorly rated firms to participate in certain segments of the capital market that are otherwise unavailable to them.
Securitisation process
? ssal
obligor Ancillary service provider
S.P.V.
originato r Rating agency
investor
structurer
Parties to securitisation
? Originator: It is the entity on whose books the assets to
be securitized exist. ? S.P.V.: It is the entity which would buy the assets to be securitized from the originator. ? Obligors: are the borrowers of the original loan. ? Structurer: Investment bank that bring together all the parties to a securitization deal.
Credit Enhancement
? Credit enhancement refers to the various means that
attempt to buffer investors against losses on the asset collateralising their investment. ? The credit enhancement are often essential to secure a high level of credit rating.
External Credit Enhancement
? It include insurance ,third party guarantee and letter
credit. ? Insurance-Full insurance is provided against the losses on the asset.The issuer of insurance looks to an initial premium or other support to cover credit losses. ? Third Party Guarantee-this method involve a limited /full guarantee by third party to cover losses. ? Letter of credit-For structures with credit rating below the level sought for the issue.It charges very nominal amount.
Internal Credit Enhancement.
? Credit tranching-As SPV issues two or more tranches
of securities and establishes a predetermined priority in their servicing. ? Over collateralization –the originator set aside asset in access of the collateral required to be assigned to the SPV. The cash flow from these assets must first meet any overdue payments in the main pool. ? Cash collateral-these works same as the over collateralization.
Internal credit Enhancement
? Spread account –the difference between yield on the
asset and the yield to investor from the securities is called spread account or excess spread.
ABS
? ABS are securities in which investors rely on the
performance of the asset that collateralize the securities.
? E.g. are credit card receivables .
Asset-Backed Securities
? ABS derive their cash flows from a pool of underlying
assets
? ?
?
?
MBS = mortgage backed securities CARS = certificates for automobile receivables CARDS = certificates for amortizing revolving debts HELS = home equity loan securities
Asset-Backed Securities
? The underlying assets generate cash flows of principal
and interest which can be repackaged and sold to investors.
Fixed income assets Principal Asset-backed securities
Interest
Asset-Backed Securities
? In ABS, the underlying assets are collected into a pool. ? Pool assets are standardized.
? The asset pool is placed in trust. ? Claims on the cash flows generated by the asset pool are
structured:
? ?
Pass-through structures. Multi-class structures.
? Securities representing these claims are sold.
MBS
? Backed by mortgage loans.
? A mortgage loan is a loan secured by real estate ? The “mortgage” is a security agreement that gives the lender the right to seize by foreclosure the property securing the loan if the borrower defaults ? Mortgage loans are originated by banks and other
financial firms. ? Once originated, a mortgage loan may be held, sold to an investor for cash, or pooled and securitized.
Mortgage Loan Types
? Fixed-rate, level pay (“plain vanilla”)
? ? ?
?
Term of loan is fixed (30 years is common in US) Contract rate of interest is fixed for the life of the loan. Payments (usually monthly) are constant for the term of the loan The payments fully amortize the loan.
Reverse Mortgage Loans.
? Reverse mortgage loans seeks to monetize the house as
an asset specifically the owners equity in the house.
? The scheme involves the senior citizen mortgaging the
house property to a lender who then makes periodic payments to the borrowers during his life time.
? The Borrowers are not required to service the loan
during his life time and therefore and does not make monthly repayments.
Guidelines
? RML are to be Extended by primary lending
institution registered with NHB.
? Borrowers should be Above 60 years of age. ? Borrowers should be owner of residential property
located in india.
Determination of eligible amount of loan
Age
? 60-70. ? 71-75. ? 76-80. ? above 80.
Loan as proportion of Assessed value of property.
? 45%. ? 50%. ? 55%. ? 60%.
doc_872342729.pptx