This course discusses the benefits of securitization, describes securitization, and explains the investment characteristics of different types of Asset Backed Securities (ABS). The terminology regarding ABS varies by jurisdiction. A mortgage-backed security (MBS) is an ABS backed by a pool of mortgages, and a distinction is sometimes made between MBS and ABS backed by non-mortgage assets. This distinction is common in the United States, for example, where typically the term “mortgage-backed securities” refers to securities backed by high-quality real estate mortgages and the term “asset-backed securities” refers to securities backed by other types of assets. Because the US ABS market is the largest in the world, much of the discussion and many examples in this reading refer to the United States.
This course will help the student understand the importance of securitization from a macroeconomic perspective. I will be discussing the benefits of securitization for economies and financial markets, talking about securitization and identifying the parties involved in the process and their roles. I shall also discusses typical structures of securitizations, including credit tranching and time tranching. Further more, I will be talking about securities backed by mortgages for real estate property, focusing on the types of residential mortgage designs, residential MBS and commercial MBS, respectively. I will conclude the course with a lecture on Collateralized debt obligations.
This course is very useful for anyone interested in entering the Fixed Income field of Investments, especially those entering the ABS arena.
This lecture introduces the instructor
This lecture takes you through the flow of the course
The securitization of pools of loans and receivables into multiple securities provides economies and financial markets with a number of benefits that are discussed in this lecture.
When assets are securitized, several legal and regulatory conditions must be satisfied. A number of parties participate in the process to facilitate the transaction and ensure these conditions are met. In this section, a typical securitization is described by way of a hypothetical example.
This lecture describes the parties involved in a securitization and their roles.
This lecture introduces the typical structures of securitizations, such as credit tranching and time tranching and the Role of a Special Purpose Entiry (SPE)
Before understanding Residential Mortgage backed Securities, it is essential to understand the defining features of the assets behind RMBS - Residential Mortgage Loans. This lecture helps the students understand the same.
The bonds created from the securitization of mortgages related to the purchase of residential properties are residential mortgage-backed securities (RMBS). Securities backed by residential mortgages are divided into three sectors:
(1) those guaranteed by a federal agency,
(2) those guaranteed by a GSE, and
(3) those issued by private entities and that are not guaranteed by a federal agency or a GSE.
The first two sectors are referred to as agency RMBS, and the third sector as non-agency RMBS.
This lecture talks about agency RMBS, specifically mortgage pass-through securities.
CMOs are created by redistributing the cash flows of mortgage-related products, including mortgage pass-through securities, to different bond classes or tranches on the basis of a set of payment rules
Commercial mortgage-backed securities (CMBS) are backed by a pool of commercial mortgages on income-producing property, such as multifamily properties (e.g., apartment buildings), office buildings, industrial properties (including warehouses), shopping centers, hotels, and health care facilities (e.g., senior housing care facilities). The collateral of is a pool of commercial loans that were originated either to finance a commercial purchase or to refinance a prior mortgage obligation.
Auto loan ABS are backed by auto loans and lease receivables. The focus in this lecture is on the largest type of auto securitizations—that is, auto loan-backed securities. This lecture also talks about Credit card receivables that are used as collateral for the issuance of credit card receivable ABS.
A collateralized debt obligation (CDO) is a generic term used to describe a security backed by a diversified pool of one or more debt obligations (e.g., corporate and emerging market bonds, leveraged bank loans, ABS, RMBS, and CMBS).
Multiple choice based on CFA pattern
A CFA charter holder, I have extensive experience in the field of F&A outsourcing and have worked on various projects within the F&A Arena. I have 11 years of experience in F&A delivery, handling end to end finance and accounting processes, F&A practice and process improvement. I am also a visiting faculty with International College of Financial Planning, New Delhi where I have taken classes for CFA L 2 and 3. I have my own channel on Youtube on Finance and Investments.
Specialties: Finance, Fixed Income, Treasury, Accounts Payable, Accounts Receivables, Reconciliation, Fixed Asset and Project accounting, Solution development, F&A Training, SOX testing, Fraud risk assessment and Process streamlining.