CFA_L1_Assignment_179_Lesson 1: Introduction, the Benefits of Securitization and the Securitization Process

The _______ is the issuer of the asset‐backed securities.

1. SPV

read this

Since securitized bonds are sold in the public market, they enjoy much better liquidity (lower liquidity risk) than the original loans on bank balance sheets. Further, financial markets are made more efficient.

who determines the credit worthiness?

rating agencies

what is the name of this process? 1. Assets (typically loans and receivables) are moved by the owner to a special legal entity. 2. The special legal entity then uses the assets as collateral to issue fixed-income securities (known as asset-backed bonds). 3. Cash flows from the collateral pool are used to make interest and principal payments on those asset-backed bonds.

securitization

In a securitization, the originator of the loans is most likely referred to as the: Servicer. Issuer. Seller.

seller

what do we call the firm that buys the loans to securitize them?

the Special purpose vehicle or special purpose entity (SPV or SPE)

what do we also call the SPV or SPE?

the issuer or trust

In a securitization, the issuer of asset‐backed securities most likely refers to: The originator of loans. The special‐purpose vehicle (SPV). The servicer of loans.

1. You Answered Correctly! B. The SPV issues ABSs. The originator of the loans sells those loans to the SPV, and then these loans (receivables) serve as collateral for issued ABSs.

The _____________ rule refers to the principle that in case of default, senior secured creditors are repaid before subordinated creditors receive anything, and all creditors are repaid before equity holders receive anything.

1. absolute priority

before __________, Investors were only able to gain exposure to the bank' entire portfolio of assets; i.e., they were unable to pick and choose the types of assets they desired exposure to.

1. securitization

The assets that are used as collateral to issue asset-backed bonds are called _______ assets and include residential mortgage loans, commercial mortgage loans, automobile loans, student loans, and credit card receivables.

1. securitized

The originator of loans is known as the _______, as it sells the loans to an SPV.

1. seller

tell me the order of securitization

1. seller of cars originates loans and loans car to customers for exchange of funds 2. sell the customer loans to a 3rd party 3. 3rd party puts all loans together and sells shares of the security to outside investors to split the interest payments. 4. send principal payments back to originator and keep portion of interest payments while also sending small % of interest payments to investors

Which of the following benefits does securitization LEAST likely offer? Securitization allows banks to maintain ownership of securitized assets. Securitization enables investors to have a stronger claim on the collateral pool of assets. Securitization lowers the cost paid by borrowers and improves the return realized by investors.

a. Securitization allows banks to maintain ownership of securitized assets. CORRECT******* Ownership of the securitized assets is transferred to an SPV in a securitization.

what do we call the originator of the loans?

the seller or depositor

who markets securities to investors?

the underwriter

who services the loans?

usually a bank, collect payments, etc