An Introduction to Asset-Backed Securities

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).