securitization
Loans become bonds
Securitization is the financial practice of pooling various types of debt—mortgages, car loans, credit card balances—and repackaging them as tradeable securities sold to investors.
The process transforms illiquid assets into liquid ones, spreading risk across many holders.
Mortgage-backed securities, a form of securitization, played a central role in the 2008 financial crisis: The bank's aggressive securitization of subprime mortgages ultimately backfired.
Merging shared contributions
- subordinationLower position in hierarchy
- seniorHigher in rank
- mezzanineIntermediate story between floors
- juniorLower in standing
waterfall · pass-through · conduit · originator · servicer · trustee · pro-rata · ring-fencing
Backed by home loans
- asset-backedSecured by underlying property
- collateralizedBacked by pledged assets
- receivablesOutstanding amounts owed you
- leasesContracts granting temporary use
royalties · equipment · remittances · repackaging · homogeneous · granularity · underlying · performing
Gradual debt reduction schedule
- interestAttention, stake, or fee
- principalChief school administrator
- waterfallDescending river over precipice
- distributionAllocation across recipients
lockbox · collection · accrual · deferral · capitalization · trigger · yield · spread
Official release or distribution
- placementPutting somewhere specific
- primaryChief in importance
- secondaryLesser in rank
- investorsThose who commit capital
institutional · trading · pricing · spread · benchmark · prospectus · private · public
Preset standard option
- downgradeReduce in status
- delinquencyCriminal or neglectful behavior
- prepaymentPayment made beforehand
- extensionAdded part or duration
counterparty · retention · disclosure · representation · warranty · recourse · monoline · wrap
pooling
Merging shared contributions
- subordinationLower position in hierarchy
- seniorHigher in rank
- mezzanineIntermediate story between floors
junior · waterfall · pass-through · conduit · originator · servicer · trustee · pro-rata · ring-fencing · issuer
mortgage-backed
Backed by home loans
- asset-backedSecured by underlying property
- collateralizedBacked by pledged assets
- receivablesOutstanding amounts owed you
leases · royalties · equipment · remittances · repackaging · homogeneous · granularity · underlying · performing · non-performing
amortization
Gradual debt reduction schedule
- interestAttention, stake, or fee
- principalChief school administrator
- waterfallDescending river over precipice
distribution · lockbox · collection · accrual · deferral · capitalization · trigger · yield · spread · discount
issuance
Official release or distribution
investors · institutional · trading · pricing · spread · benchmark · prospectus · private · public · regulation
default
Preset standard option
- downgradeReduce in status
- delinquencyCriminal or neglectful behavior
- prepaymentPayment made beforehand
extension · counterparty · retention · disclosure · representation · warranty · recourse · monoline · wrap · vintage
- financebank, CFO, banks, controller, finance
- corporate financecost of capital, investment, capital markets, NPV, debt financing
- mortgagesfixed-rate mortgage, mortgage broker, adjustable-rate mortgage, mortgage payment, mortgage insurance
- housing crisishousing bubble, housing crash, subprime mortgages, foreclosures, subprime loans
- Investment BankingM&A, IPO, merger, mergers, acquisition
- bankingbank, banks, ATM, ATMs, account
secure, security, insecure, secured, insecurity, securing, securely, unsecured, securities