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    Chapter 1: Introduction To Securitization: Andrew Davidson Anthony B. Sanders Lan-Ling Wolff Anne Ching

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    This document provides an introduction to securitization. It discusses how securitization works by packaging financial promises into a form that can be transferred among investors. This is done through a process called structuring that segments cash flows and risks. The document includes tables and figures showing the growth of various securitized asset classes from 1995 to 2001 and the key concepts, players, and investment characteristics involved in securitization.

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    Chapter 1: Introduction To Securitization: Andrew Davidson Anthony B. Sanders Lan-Ling Wolff Anne Ching

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    ranjan.riku19846548
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    This document provides an introduction to securitization. It discusses how securitization works by packaging financial promises into a form that can be transferred among investors. This is done through a process called structuring that segments cash flows and risks. The document includes tables and figures showing the growth of various securitized asset classes from 1995 to 2001 and the key concepts, players, and investment characteristics involved in securitization.

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    This document provides an introduction to securitization. It discusses how securitization works by packaging financial promises into a form that can be transferred among investors. This is done through a process called structuring that segments cash flows and risks. The document includes tables and figures showing the growth of various securitized asset classes from 1995 to 2001 and the key concepts, players, and investment characteristics involved in securitization.

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    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    15 views11 pages

    Chapter 1: Introduction To Securitization: Andrew Davidson Anthony B. Sanders Lan-Ling Wolff Anne Ching

    Uploaded by

    ranjan.riku19846548
    This document provides an introduction to securitization. It discusses how securitization works by packaging financial promises into a form that can be transferred among investors. This is done through a process called structuring that segments cash flows and risks. The document includes tables and figures showing the growth of various securitized asset classes from 1995 to 2001 and the key concepts, players, and investment characteristics involved in securitization.

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    Chapter 1: Introduction to Securitization

    Andrew Davidson
    Anthony B. Sanders
    Lan-Ling Wolff
    Anne Ching
    The Role of Securitization

     The process of packaging financial promises and


    transforming them into a form whereby they can be freely
    transferred among a multitude of investors is
    securitization.
     The transformation of the raw assets into a form that is
    more desirable for investors often involves segmenting
    cash flows and risks, through a process called
    structuring.

    Securitization Chapter 1 2
    Table 1.1 Summary of Major Asset Classes

    Manufactured Equipment
    MBS Credit Cards Auto Home Equity Housing Student Loans Leases Total
    1995 1863.2 153.1 59.5 33.1 11.2 3.7 10.6 2134.4
    1996 2040.8 180.7 71.4 51.6 14.6 10.1 23.7 2392.9
    1997 2239.4 214.5 77.0 90.2 19.1 18.3 35.2 2693.7
    1998 2589.8 236.7 86.9 124.2 25.0 25.0 41.4 3129.0
    1999 2954.8 257.9 114.1 141.9 33.8 36.4 51.4 3590.3
    2000 3232.3 306.3 133.1 151.5 36.9 41.1 58.8 3960.0
    2001 3717.4 361.9 187.9 185.1 42.7 60.2 70.2 4625.4
    Source: The Bond Market Association & Federal Reserve Bulletin

    Securitization Chapter 1 3
    Figure 1.1 Composition of Outstanding Securitization in
    2001

    SL EL
    MH 1.3% 1.5%
    0.9%
    HEL
    4.0%
    Auto
    4.1%

    Credit Cards
    7.8%

    MBS
    80.4%

    HEL=Home Equity Loans MH= Manufactured Housing SL=Student Loans EL=Equipment Leases
    Source: Bond Market Association, Federal Reserve Bulletin

    Securitization Chapter 1 4
    Figure 1.2 Volume of MBS & ABS Issuance, 1995-2001

    1600

    1400

    1200

    1000
    Student Loans
    Manufactured Housing
    $ billions 800 Home Equity Loans
    Autos
    Credit Cards
    600 Agency & Private-Label MBS

    400

    200

    0
    1995 1996 1997 1998 1999 2000 2001

    Source: 2002 Mortgage Market Statistical Annual.The Bond Market Association.

    Securitization Chapter 1 5
    Figure 1.3 Volume of ABS Issuance, 1995-2001

    350

    300

    250

    Other
    200
    Student Loans
    $ billions Manufactured Housing
    Home Equity Loans
    150 Autos
    Credit Cards

    100

    50

    0
    1995 1996 1997 1998 1999 2000 2001
    Source: 2002 Mortgage Market Statistical Annual

    Securitization Chapter 1 6
    Figure 1.4 Allocation of Proceeds

    102

    Mortgage Broker
    Mortgage Banker
    Dealer
    100
    Borrower

    98
    Price

    Borrower Receives
    96
    Investor Pays

    94

    92

    90

    Securitization Chapter 1 7
    Figure 1.5 Distribution of Interest Payments
    9

    Guarantor
    Investor Receives

    Borrower Pays
    5
    Servicer
    Spread to Investor
    Interest

    Option Cost to Investor


    4 Duration Cost to Investor
    Funding Cost to Investor

    Securitization Chapter 1 8
    Key Concepts

     Collateral
     Credit Enhancement
     Standardization
     Liquidity

    Securitization Chapter 1 9
    Key Players in Securitization

     Borrower
     Mortgage Broker
     Mortgage Banker
     Dealer
     Lawyers
     Accountants
     Rating Agencies
     Servicer
     Guarantor
     Trustee

    Securitization Chapter 1 10
    Key Investment Characteristics of Securities (Bonds)

     Financial instruments
     Timing of repayment of principal

     Amount and form of interest paid on the amount of

    outstanding principal
     The credit quality of the instrument.

     Interest payments
     Fixed-rate bonds pay a constant rate of interest on the

    outstanding principal balance.


     Floating-rate bonds pay a coupon that varies over time.

    Securitization Chapter 1 11

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