• An asset-backed security is a type of bond or note that is based on a pool of assets, or collateralized by the cash flows from a specified pool of underlying assets. Assets are pooled to make otherwise minor and uneconomical investments worthwhile, while also reducing risk by diversifying the underlying assets. Securitization makes these assets available for investment to a broader set of investors. These asset pools can be made of any type of receivable, like credit card payments, auto loans, and mortgages. Typically, the securitized assets might be highly illiquid and private in nature.

• The underlying assets in an asset-backed security can be either an amortizing or a non-amortizing asset.  While in amortizing assets, the loan repayment is distributed over the life of the loan, non-amortizing assets do not have a particular fixed pattern of payment of interest and repayment of principal.

• Asset-backed securities can be classified as fixed and floating rate asset-backed securities. A floating rate asset-backed security is one whose underlying pool consists of loans or receivables carrying a floating rate. In fixed rate
  asset-backed securities, the underlying pool consists of fixed-rate loans whereas in a floating rate loan, the security is divided into one or more floating rate tranches.

• Credit enhancement encompasses a variety of provisions that may be used to reduce the credit risk of an obligation. It refers to one or more initiatives the originator in a securitization structure has to enhance the security, credit or the rating of the securitized instrument, i.e., by providing a cash collateral, profit retention, third party guarantee, etc.

• An asset-backed security can either have a pass-through or a pay-through structure. In a pass-through structure, each certificate holder will be allotted a proportion of the cash flow from the underlying pool of loans or receivables on a pro rata basis. In a pay-through structure, while a senior tranche can be split into different tranches, a subordinated tranche cannot be done so.

Posted Date: 9/8/2012 9:14:42 AM | Location : United States

Ask an Expert

Related Discussions:- Brief introduction of asset backed security, Assignment Help, Ask Question on Brief introduction of asset backed security, Get Answer, Expert's Help, Brief introduction of asset backed security Discussions

Write discussion on Brief introduction of asset backed security
Your posts are moderated

Write your message here..

Related Questions

Compute the economic order quantity, Q. Compute the economic order quantity... Q. Compute the economic order quantity? TNG has a current order size of 50000 units Average number of orders per year = demand/order size = 255380/50000 = 5·11 orders Ann

Define how does accounts receivable factoring work, How does accounts recei... How does accounts receivable factoring work?  What are the benefits to the two parties involved?  What are the risks? Factoring is while one firm sells accounts receivable that i

Cash flow estimation and risk ananlysis.., as a financial analyst, you must... as a financial analyst, you must evaluate a proposed project to produce printer ink. the equipment would cost 60000 plus 10000 for installation. annual sales would be 5000 units at

Finance, #qSeven years ago, after 15 years in public accounting, Stanley Bo... #qSeven years ago, after 15 years in public accounting, Stanley Booker, CPA, resigned his posiition as Manager of Cost Systems for Davis, Cohen, and O''''''''Brien Public Accountan

What are the characteristics of an efficient market?, What are the characte... What are the characteristics of an efficient market? The term market efficiency denotes to the ease, speed, and cost of trading securities. In an efficient market the securitie

Bond and Stock valuation, 2. Suppose a 12% coupon bond sells at par today; ... 2. Suppose a 12% coupon bond sells at par today; and three years from today, the required rate on the same bond is 8%. What is the coupon rate on the bond today and what will it be

Risks and advantage when a company has operation in country, What are some ... What are some of the primary advantages when a corporation has operations in countries other than its home country?  What are some of the risks? Foreign operations may decrease a

Letter of credit (loc), Letter of Credit (LOC) A popular bank instrumen... Letter of Credit (LOC) A popular bank instrument begins that a bank has granted the holder an amount of credit equal to the face amount of the L/C. A bank guarantees payment of

Objectives of cash management, Q. Objectives of Cash Management? (i) To... Q. Objectives of Cash Management? (i) To sustain Optimum Cash Balance: - The major objective of cash management is to determine the optimum cash balance required in the busines

Capital budgeting and cost of capital, Can I get help with project Can I get help with project