I have a bit of an idea of what it includes and some of its features, but if someone asked me what it meant I’d have no answer for them.
*Edit
Much appreciated guys. This was very helpful!
In: Economics
It means what is sounds like – making something into a security. Usually that something is a bunch of IOUs (loans, mortgages, receivables). The advantage of securitization for the lawyers and bankers is they can originate loans beyond what they have the capacity or desire to hold on their books. The advantage for the investor is they can invest in a pool of hundreds or thousands of loans without needing the infrastructure to be able to originate hundreds or thousands of loans. The securities usually trade more often than the underlying assets – which everyone likes. The most notable downside is that there isn’t perfect alignment of incentives between those originating the deals and those who own the risk.
Latest Answers