Securitization of mortgage lending. Securitizing assets or a way to get money for unused assets

Credit to pensioners - 07/30/2020

Mortgage securitization actually means the procedure for refinancing a mortgage. If the format of cooperation ceases to suit the borrower or lender, a third party enters the scene. As a rule, we are talking about buying credit obligations on favorable terms to all. The bank that issued the mortgage to the borrower has the right to resell the obligations to a third party. The new participant in the process pledges his interest in the transaction and assumes credit risks. In order for the transfer of rights to take place, the issuance of mortgage-backed securities is initiated. These documents act as the subject of the transaction.

Securitization market

The securitization market in the Russian Federation appeared in 2004. The first deal was carried out at the initiative of OAO Gazprom. The issued securities confirmed the rights to obligations on future export receipts of blue fuel. The deal amounted to $ 1.25 billion. In 2005, 2 more securitization transactions were recorded on the Russian market. In 2006, there were already 8 such transactions, and so on. At the moment, securitization in the Russian Federation is developing quite actively. Refinancing retail loans is one of the most common products. The service makes life much easier for borrowers and lenders.

Securitization transactions

To make the resource base more accessible, Russian banks are conducting securitization deals. These are financial institutions rated B or BB. At the same time, the senior tranches are expected to receive ratings of BBB + or higher. Such conditions provide direct economic benefits from securitization. Too high transaction costs and small volumes of securitization transactions in the Russian Federation significantly reduce the net economic effect of the transactions.

Securitization in Russia

The rapid development of the securitization market in Russia took place in 2006. Since that time, the number of securities issues in various directions has been constantly growing. The demand for the product is due to the growing need of originators (issuing and issuing mortgage loans) to expand the resource base. This makes it possible to optimize financing of rapidly growing assets. Securitization is massively carried out in the segment of retail loans from commercial banks. Thus, lenders manage to fill the deficit of borrowed resources in order to further increase the volume of retail assets.

Securitization of assets

Asset securitization is a truly attractive source of long-term financing for most commercial banks in the Russian Federation. Unfortunately, the imperfect legislative framework will not allow to maximize the potential of the popular direction. Securitization within the Russian Federation is carried out in order to form collateral for mortgage assets. For this, the country has developed a sufficient legal framework. When securitizing bank or consumer loans, potential legal risks remain quite high.

Securitization of loans

Many commercial banks require long-term funding sources. For this purpose, they initiate the securitization of loans from the mortgage segment. Major players in the credit market are able to issue the necessary securities at the expense of the resources available on the balance sheet. Such processes take place within the framework of programs developed in development institutions, as well as through an SPV (special company) with the support of the originator. Small and intermediate players initiate joint releases or organize a process with the participation of several originators.

Securitization of risks

Risk securitization consists in organizing the process of transferring risk to the financial market area. At the same time, the owner of the risk issues securities linked to the securitized risk. The first placement of securities allows the creation of a reserve, which is used as collateral for the securitized risk.

Securitization of catastrophic risks has become widespread. The instruments used are bonds for a period of 12 months. Income and par value are allocated to investors based on whether the catastrophic risk has been realized.

Securitization of securities

Too active securitization of securities was the main cause of the 2008 mortgage crisis in the United States. Subsequently, the events that took place led to serious financial shocks on a global scale.

The so-called sub-class in the States turned out to be a mere soap bubble. Real estate and cars were handed out to insolvent citizens who were unable to pay monthly installments.

A well-organized securitization of securities includes professional monitoring of the situation by regulators, an objective valuation of available resources, as well as stricter criteria for selecting potential borrowers at the initial stage.

Securitization mechanism in the mortgage refinancing system

The securitization mechanism in the mortgage refinancing system was invented in the United States several decades ago. At that time, a real revolution took place in the financial and banking sectors of the country's economy. Despite all the shortcomings, securitization is still considered the main impetus that gave impetus to the development of financial markets at the turn of the 20th and 21st centuries. In fact, the mechanism boils down to transferring assets to a more liquid format. In a narrower sense, we are talking about the transfer of assets with a low level of liquidity into securities. The subject of the transaction is secured in the form of proceeds from the original assets. Thus, it is possible to more evenly distribute the risks between investors, guarantor and asset owners.

Key players in the securitization process and their functions

Originator - deals with the issuance and servicing of mortgage loans.
Special Investment Company (SPV). Buys out assets from the bank. Carries out the issue of securities. Keeps assets on mortgage loans on the balance sheet.
Backup service agent. It is used if the bank is unable to perform its own functions.
Guarantors (insurance companies and large banks) - Provide credit support for securitization.
Underwriter - evaluates issued securities, structures transactions.
Consulting and rating companies - consult and evaluate the activities of the participants in the process.
Investors - invest in mortgage-backed securities.

Securitization of the bank's loan portfolio

Securitization of the bank's loan portfolio begins with the collection of a pool of loans at the initiative of the originator. When the process is complete, the primary lender sells a portfolio of homogeneous loans to a special purpose vehicle (SPV). The special purpose vehicle, in turn, finances the acquisition through the issuance of bonds or other securities. Loan payments in future periods act as collateral. As a result, the originator gets capital, which he managed to attract through stock market investors. The service agent is also involved in the securitization process.

Effectiveness of using the securitization mechanism

The effectiveness of the application of the securitization mechanism in the Russian Federation is determined by the goals and advantages of the process itself. Securitization appeared due to the high cost of borrowed capital. The reason for the high cost of loans is the low level of development of the stock market and the banking sector. Due to their presence in the securities market, credit institutions attract additional funds on more favorable terms. As a result, financial institutions seem to kill two birds with one stone: they receive additional funds for business development, and also get rid of assets with low liquidity.

Securitization of mortgage loans began to be applied by Russian banks relatively recently. This is a special tool that financial institutions use to reduce their own risks. Let's take a closer look at what this procedure means and how it is applied in practice.

Securitization: definition and types

In simple terms, mortgage securitization is the sale of debt. When a bank issues funds for the purchase of residential or commercial real estate, there is often a risk that the borrower will not repay the debt or pay, but partially. To mitigate these risks, financial companies issue mortgage-backed securities and resell them to investors. The latter often acquire them at a lower cost and receive income in the future.

The loan portfolio usually includes a package of debt obligations with a low correlation. That is, each mortgage loan does not depend on the other and the decrease in the profitability of one does not affect the profit of the “neighboring” loan. Thus, even if the portfolio contains relatively risky loans (or with medium liquidity), the total return will be higher than the implementation of all debts separately. In this case, the selling price is formed taking into account various risks. Also, the size of the investor's profit may be affected by the general economic situation in the country.

The benefit of the bank from the securitization of assets is obvious: it quickly returns the funds transferred to clients, which makes it possible to refinance borrowers, and protects itself from the risks of non-repayment of debt, that is, from potential loss of profits.

Securitization is divided into two main types:

With the participation of banking assets - carried out using the issue of securities or at the expense of attracted loans.
With the participation of foreign assets (non-banking) - carried out thanks to credit funds or finance received from the stock market.

The securitization procedure provides for participation:

Originating bank - provides mortgage loans and is engaged in their service.
A special investment organization - redeems assets from the originator creditor, accumulates them, and issues securities.
Reserve service agent - takes up duties only after the main bank loses the ability to service these loans.
Guarantor - Supports the securitization process at the credit level. It can be a large bank or an insurance company.
Paying (mortgage) agent - conducts transactions with securities.
Underwriter - structures the transaction, evaluates and maintains the value of securities.
Consulting company (solves legal and accounting issues) - advises in the field of taxation and jurisprudence.
A rating agency assigns a rating to issued mortgage-backed securities, taking into account the studied characteristics of the pool (loan portfolio) and the level of financial independence of the participants in the transaction.
Investors - are engaged in investing money in issued mortgage-backed securities.

This is a classic scheme. Some participants may not appear in the transaction, for example, when using such a type as synthetic securitization. In this case, the originating bank assigns the rights of claim for debt obligations directly to the buyer (investor). This eliminates the need to create a special investment company, which, as a rule, is a joint-stock company.

How the process works

In a simple sense, the process looks like this:

issuance of a mortgage loan to borrowers;
the formation of a credit pool;
issue of securities;
sale of debt obligations to an investor;
receiving a profit.

Initially, the originating bank forms and accumulates a credit pool for the issue of securities. Considering that the actual cost of such a transaction for a bank is quite tangible, the portfolio should contain more than one or two obligations, they can amount to thousands. There are certain requirements for the assets themselves, as a rule, these are mortgage loans similar in risk, timing and liquidity. The securitization scheme can be any.

Assets (mortgage debt) are accumulated in different ways. The bank can do this within its organization, which is not always beneficial. An alternative option - the accumulation of such assets off the balance sheet - for this, joint stock companies are created (special investment organizations - one of the participants in the transaction).

Special investment companies (referred to in the abbreviation SPV) together with the paying agent issue securities for their further sale. Based on the analysis of the rating agency, the liquidity of the “product” is assessed. At the same stage, an underwriter and a consulting agency are involved to control the process and provide the necessary support in terms of debugging accounting, paying taxes and the legal side of the transaction.

Subsequently, the originating bank, which originally issued mortgages to the population or legal entities, services these loans, that is, it accepts payments for them from borrowers. If he loses his license or the ability to continue performing the functions of an agent, a backup service center is involved, he continues to service loans.

The security, which the bank has issued in order to confirm the debt obligations, may be re-mortgaged or sold several times in the future.

The borrower who purchased the property continues to pay off the mortgage loan in the manner prescribed by the contract. Securitization does not affect this process in any way. An exception can only be a change in the details of the recipient of funds, in case of termination of the activities of the original originating bank.

How securitization was implemented in the Russian Federation

The securitization procedure appeared in Russia relatively recently. In the process of its development, the formation of the AHML played an important role. Banking companies issued loans, which were later bought out by this agency, created under the supervision of the state.

The start of securitization was laid by commercial lending institutions in 2005, when such banking structures as Russian Standard, Soyuz and Home Credit made deals aimed at refinancing portfolios, including consumer loans and car loans. Gazprombank pioneered the procedure for securitizing a mortgage loan in 2007, setting an example for other banks.

Over the next three years, after a number of initial transactions were concluded on the territory of the Russian Federation, their number began to grow rapidly. Not only portfolios of consumer loans began to act as assets for the issue of securities. They were joined by car and mortgage lending, as well as factoring payments. All transactions carried out had a cross-border form, that is, domestic banks sold their portfolios to foreign enterprises.

In 2008, due to the aggravated financial crisis, it became impossible to conduct cross-border transactions. It was possible to renew them only after 4 years. At the same time, the Russian banking practice received the first experience of implementing securitization in the domestic market. It was this moment that marked the beginning of the development of a scheme for refinancing assets of various forms using bonds issued domestically.

In 2017, the Agency for Housing Mortgage Lending and Sberbank carried out a large-scale deal to securitize housing loans. One-tranche mortgage bonds were issued with the participation of the IBC Factory, which was created to attract financial injections into the Russian mortgage market, as well as to increase the number of completed loan transactions at lower rates.

In 2018, securities are also present in the secondary market, which in the future is likely to result in risk reduction and mobilization of available cash reserves through refinancing. How the securitization of assets in the banking segment will manifest itself in the future directly depends on changes in the legal framework and on its future development. Insufficient demand, that is, the number of investors willing to invest in securities, can be attributed to the constraining factors.

But it is worth noting that the procedure itself is quite beneficial for all parties to the transaction. Various companies that profit from their activities take part, the process of mortgage lending has less risks for banking structures, increasing the volume of loans issued. The latter is beneficial for the population and legal entities, as it opens up the opportunity to purchase their own real estate for living or doing business.

creditkin.guru

Securitization is ... (assets, mortgages)

Securitization is the attraction of financing for certain types of assets by issuing shares, bonds and other types of securities. This procedure can also be applied to mortgages, car loans, etc.

In other words, this is when, for example, the bank needs to receive additional money. Then he prints securities, having acquired which a person, as it were, becomes a creditor, to whom a certain amount of money is owed after some time. At the same time, the bank receives money today, and the person receives some benefit in the future.

The essence of the securitization process

So what is this method and what is it used for? The easiest way to understand what this financial transaction is, by example.

Let's assume that the bank has a portfolio of liabilities issued under mortgage loans, leasing agreements and several other types of loans. For the purpose of freeing up its own funds, the lender issues debt bonds, which are secured by the right to claim debt on these assets.
Another option is when a separate organization is created that acquires assets. This firm is financed by issued securities. As a result of this operation, the bank reduces existing risks and gains access to new financial opportunities.

Nowadays, the securitization process can be found not only in the financial market. Let's take an example again. The developer company is engaged in the construction of an office center. By using a securitization procedure, it can sell future rental income, and thus raise funds initially.

In addition, securitization is often used as part of crisis management. The bank often uses this instrument to improve its financial condition at the expense of the lowest quality assets. At the same time, buyers of securities can count on getting a sufficient profit, that is, when forming the value of such a security, the risk of non-return is taken into account.

The securitization process consists of three stages.

Assets are selected
Selected assets are pegged
For the purpose of securing these assets, securities are issued.

In Russian banking practice, such large banks as Bank of Moscow, Gazprombank, Russian Standard and others have resorted to the securitization procedure.

The concept of securitization and its types

Despite the fact that this financial term is widely used in the specialized literature, you can often come across the fact that its meaning is rather vague. We can say that it is more correct to use the phrase "asset securitization", since one term does not carry the semantic load that financiers put into it.

Having analyzed all the available definitions of asset securitization, they can be divided into two types:

Securitization as a way of transferring illiquid assets to liquid ones using the stock market.
Securitization process as a certain sequence of actions.

The mechanism of this process is a rather complex operation consisting of many stages with the participation of several financial institutions and using various financial instruments.

Consider a basic example of asset securitization, where the initiator of the process is the lending bank that issued the loan to the borrower in monetary terms. In this case, the initiating bank is at the same time the issuer issuing securities (in this example, bonds), backed by assets. In addition, the process involves:

An investor who purchases bonds, giving him the right to receive, at the end of its validity period, the amount of the initial value of the security plus interest.
A borrower who has applied to a bank for a loan, which pays the bank the amount of the debt and the accrued interest.
At the same time, in practice, at the moment, various intermediary organizations can be added that perform the process of issuing, placing or redeeming securities.

Securitization in Russia

This procedure has become part of Russian banking practice relatively recently.

The first such deals were carried out by Russian commercial banks in 2005, when Soyuz Bank, Russian Standard Bank and Home Credit Bank refinanced their consumer and car loan portfolios. These transactions were carried out with the participation of foreign companies; to attract foreign capital, foreign bonds were issued.
In 2007, Gazprombank carried out the first mortgage loan securitization transaction. In this case, the transactions fell under the law "On Mortgage Central Banks", which allowed the issuance of bonds secured by mortgage loans from the bank's balance sheet, or with the involvement of a mortgage agent.
The next three years after the first transactions in the Russian financial market can be characterized as a rapid growth in the number of securitization transactions. The assets for which the securities were issued were not only portfolios of consumer loans, but also leasing and factoring payments, car loans and, of course, mortgages. All transactions carried out during this period were cross-border, that is, the buyers of the portfolios were foreign companies.
Due to the outbreak of the financial crisis in 2008, the external market was virtually closed, and cross-border transactions began to be concluded again only four years after the start of the crisis.
In the same year, for the first time in Russian banking practice, a securitization transaction for a portfolio of consumer loans in the domestic market was implemented. From that moment on, a securitization scheme for all types of assets was developed by issuing national bonds.

The securities market in Russia is constantly growing and developing, more and more new types of them come into use, the percentage of transactions for their use is increasing. All this is the reason for the emergence of asset securitization transactions in Russia.

Currently, a secondary market for loans with the participation of securities is emerging, which inevitably leads to a decrease in risk and an increase in the likelihood of attracting inexpensive funds through refinancing.

The further fate of the securitization of assets in the Russian banking sector is very much dependent on the development of the legal framework.

As part of addressing this issue, a draft of amendments to a number of existing laws and codes was prepared, aimed at developing the securitization market in the Russian financial sector.

Today in Russia there are a number of problems that hinder the growth of the number of securitization transactions. To solve them, the draft law described above was prepared, which, ideally, would be able to legislatively establish the following points:

The procedure for taxation in relation to transactions for the securitization of assets;
A new way of securing obligations;
Functions and powers of the state body in charge of securitization transactions in the securities market;
The list of rights of claim that can be assigned;
Bankruptcy proceedings;
Consideration of peculiarities in currency regulation;
List of requirements for the issuer issuing securities as part of the asset securitization process;
Establishment of a specific list of assets admissible for securitization transactions.

However, in addition to problems with the legal framework, there are other difficulties that hinder the development of this type of financial transactions. These are economic constraints, which are caused by the fact that the Russian market is quite young and immature.

For example, there are practically no large investors on the Russian market, who in Western practice are the target group in the securitization process. There is no statistics on long-term bonds redemption, and banks have a short credit history.

This bill was implemented through the adoption in 2014 of Federal Law 379-FZ, designed to create an effective legal regulation of the process of securitization of assets in Russia.

The emergence of legislatively enshrined rules governing the process of securitizing assets is an important evolutionary step in the development of the Russian securities market.

This law establishes the definition of the process itself, as financing, or refinancing of assets owned by legal entities, by transferring these assets into liquid form through the issue of securities.

Summing up, it should be said that the Russian financial market still has to go through many stages of development, but the foundation stone of the legislative framework was successfully laid. This gives hope for the creation in the future of a market for high-quality securitization transactions, taking place according to a single legally approved standard.

bankspravka.ru

Securitization of mortgage loans in Russia and worldwide

Mortgage credit lines have appeared relatively recently in Russia, but have already taken a firm place in the banking system and in the lives of citizens. Collateral loans are issued for up to 30 years, which is accompanied by a mutual danger for the borrower and the lender. Therefore, for the latter, the first place is taken by the securitization of mortgage loans - their transfer to another organization in order to obtain funds, securities, but already at a lower cost. This process does not yet have a legislatively approved basis, although the Agency for Housing Mortgage Lending has been practicing this for the past several years, thereby providing commercial banks to carry out repeated loans to the population.

What is mortgage securitization

The process is conditional on the financing of specific assets using issued securities. Its objects can be the same mortgage loans, car loans, funds for the ownership of leased property. This conversion is driven by the risk reduction of the financial institution.

The procedure for securitizing a mortgage loan involves the sale of long-term loans, which is a mortgage, to a third-party financial institution at a reduced cost. Thus, the bank protects itself from the risk of default on the loan by transferring it to another organization, however, receiving cash for refinancing. The last may be a new mortgage loan.

The procedure for the sale of debt obligations of its clients by the bank takes place by the transfer of the long-term loan portfolio to another owner. By this action, the bank kills two birds with one stone - it partially eliminates the resulting financial gap and will protect itself from future possible non-payments in the event of the borrower's bankruptcy. In a way, it is like passing a powder ball with a lit wick from one hand to another. Whoever explodes the core will be the loser. However, bankers don't seem to care about such things.

Securitization market in Russia

The first such transaction was carried out in the country at the initiative of Gazprom in the mid-2000s. The deal for more than $ 1 billion in future gas exports proved to be a touchstone. Further more. The number of such financial transactions has increased significantly since 2006, which has led to some legalization.

The return in this way of funds that are again invested in circulation has become commonplace. The demand for this conversion is explained by the desire of banks providing mortgage loans - the originator - to expand the resource base. This helps to reduce the costs of rapidly growing allocated funds. The technology has gained popularity in other segments of commercial bank retail lending. From this we can conclude that creditors are able to compensate for the deficit of allocated resources to increase the volume of retail assets.

In the Russian mortgage market, originators are aggressively initiating securitization as a source of long-term financing. Large banking organizations issue corresponding securities thanks to the resources located on the balance sheet. The mentioned processes are stipulated by the conditions of development institutions, including the mediation of special companies - SPV, certified by the support of the originator. Agents of a medium, small division carry out joint releases, or draw up the procedure with the help of several originators.

Key players in the securitization process and their functions

The main participants in the conversion procedure are:

Originator banks issue, work with mortgage lines, accept payments from borrowers, and credit them to special accounts.
A special investment commission SPV buys out debt obligations from a bank, issues securities into circulation, contains documents of a mortgage line on its balance sheet, and is positioned by their accumulator.
The standby service agent is used when the organization is unable to fulfill its functional duties.
The guarantor - large financial institutions, insurance agencies, organizes credit support for the passage of securitization.
The paying agent works directly with the documents of property law, carries out the issue, divides into tranches, thereby increasing the benefits of refinancing the mortgage.
The underwriter evaluates the issued securities, maintains their price, and takes part in structuring the agreement.
The consulting agency undertakes consultations on accounting and taxation issues.
The rating company studies the characteristics of the debt agreement, the financial stability of the participants in the process, determines the rating of the securities present.

Investors contribute funds to the issued documents of a property nature.

Securitization mechanism in the mortgage refinancing system

This mechanism of re-mortgage lending began to be practiced in the United States. This gave rise to the development of the financial industry. In practice, this is due to the transfer of assets to a lower liquid format - securities. They are covered by collateral in the form of payments from the underlying assets. The narrow meaning characterizes the securitization mechanism in the refinancing system as the conversion of a low-liquid asset into securities, which are provided with cash receipts from primary assets.

Specialists distinguish two forms of securitization - traditional and synthetic.

Traditional

It implies a lack of efficiency in the joint holding of assets of high and low quality on the balance sheet of a credit institution. While the former are considered on the balance sheet, they carry all the risks. Based on this, it is believed that the withdrawal of high-quality assets off the balance sheet of a particular bank will be the best solution. The division of assets is handled by a specially created company. The latter buys assets, thereby taking on the risks of the lender.

Synthetic

However, numerous debt obligations need to be accumulated somewhere, and banks have come to the conclusion that it is better to do this on the balance sheet of a special investment company - SPV. After acquiring the required number of assets, it issues its securities, guaranteed by these assets.

The securitization procedure consists of several stages that characterize the activities of all participants in the financial process, from the issuance of a loan to the repayment of property rights documents backed by these loans, such as:

providing a mortgage loan;
accumulation of loans, registration of a package of mortgage documents.

The last stage is the accumulation of financial resources for the payment of property rights documents, their repayment.

Development of the legal framework for domestic securitization

The segment of securitization of mortgage assets in Russia is rapidly developing, its share in conversion mortgage loans is more than 10%. However, compared with the indicators of Western countries, this volume is too small. The Association of Regional Credit Institutions of Russia has prepared a securitization bill to attract additional liquidity. The mechanism creates a special financial association, which will deal exclusively with the issue of property securities, the execution of agreements at the expense of financial receipts.

There is a temporary ban on reorganization, payment of profits until all obligations are fulfilled. The issue of bonds should not include state registration of their issue, report. The case of bankruptcy should entail settlement at the request of creditors in connection with the issue of bonds. However, the law is only in the draft stage, which implies the internal securitization of exclusively mortgage loans.

The main problems that hinder this process are:

defective ordering of the pledge of rights;
strictly formal processes of assignment of rights;
no assignment of non-individual competencies, etc.

The situation may change after the pension reform, which will provide for accumulation in securities issued through securitization.

Effectiveness of using the securitization mechanism

One of the most important factors in the conversion of banking assets is the high cost of mortgage capital due to the underdevelopment of the banking sector. Entering the securities loan market, credit organizations make up for the lack of borrowed resources with favorable conditions for themselves. After the collection of the pool of loans, it is profitable for the bank to sell them on the stock market in order to attract additional funds for the issuance of new loans.

When converting, loans leave the bank's balance sheet, which reduces the burden on capital, improves its liquidity indicator. Also, when these loans are securitized, the share of the credit risk passes to the investor. However, for the latter, such an investment is less risky than the purchase of securities - mortgage loans cover the mass of the population. The problems of small banks are solved by selling mortgage loans to large banks, after which the latter issue them.

Securitization risks

Risk conversion consists in formalizing the procedure for transferring risk to the financial market. The owner of the probable danger issues property documents, tied to the securitized risk. The initial placement of securities will allow him to form some reserve used to ensure the mentioned risk.

Conversion of the risk of catastrophic action has become widespread. It is expressed by issuing bonds for a period of one year. Profit, their nominal price is distributed among capital investors, depending on the probability of catastrophic risk.

Conclusion

The introduction of a securitized product, provision of its service requires a well-developed legislative base, a developed infrastructure of the securities market. It will ensure the growth of the Russian stock market by accelerating circulation of mortgage-backed securities. And the securities themselves will become the object of investment by financial intermediaries.

We are waiting for your questions in the comments.

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ipotekaved.ru

Securitization of the loan portfolio - on the fingers

What's wrong here? Dear Suntechnik did not try to think over the mechanism that he described - and if he tried, he would immediately see inconsistencies (which he would correct), and would not come to the conclusions he came to.

So what was it supposed to look like?

Let's take a certain bank X, which has a mortgage product in its portfolio. The first question is: where does the bank get the money from? The bank can take money on the external market (by issuing debt obligations), the interbank market, attract deposits, and, well, share capital. As a rule, short money is attracted, and long money is placed. How to cover the cash gap? The idea is very simple - to resell the issued loan to another bank. For this, the bank issues Eurobonds secured by mortgage loans. Bonds are issued for a period equal to the loan term and are sold on the external market. The bank again sells the money received in the form of a mortgage. Oops! This is where we got confusion

An example "on the fingers": let's say a bank attracted deposits for 100 tugriks and issued loans for the same amount. Its balance looks like this: Assets: Loans - 100 Liabilities: Deposits - 100

Now the bank issues bonds backed by these loans, after which its balance looks like this: Assets: Cash - 100 Loans - 100 Liabilities: Deposits - 100 Bonds - 100

At the same time, bonds are legally tied to loans, and deposits are "secured" with real money. Where is the "pyramid" here? Routine fundraising. Now this money can be placed again in some way (to issue more loans) - but this is an ordinary business, no pyramid scheme.

If the bank physically sells the loan portfolio (i.e. loans are transferred to the balance sheet of another organization), then after this operation the balance sheet of bank X will look like this: Assets: Cash - 100 Liabilities: Deposits - 100.

Funds can be placed again, but where is the pyramid here?

Now a little about the securitization of the loan portfolio. The bank is a risk management machine. In addition to the risks of actual financial transactions and operational (sorry for the tautology), there is, for example, the risk that, as a result of some external events that do not affect this bank directly, depositors will rush to withdraw deposits, and lenders will demand early repayment of loans. All these risks are reflected in the rates at which the bank can raise money - rates on deposits and debt instruments of the bank. Therefore, we are not talking about any LIBOR + 1% for the bank (unless, of course, it is Citibank with its AAA rating). But the risk of individual assets of the bank may be lower (and significantly!) Than the bank as a whole, and if it is possible to somehow isolate this risk, then it will be possible to raise funds for this collateral much cheaper.

This is how the idea of \u200b\u200bsecuritization was born: a portfolio of loans is sold to the balance of an "empty" company (or transferred to a trust, which again means transferring ownership to an outsider - but this is a topic for a separate conversation, if anyone is interested), which is legally independent from the primary bank the creditor (orig (j) inator, as he is called in Russian-language literature), and this office is already issuing promissory notes placed on the market. This office does not conduct any other business (and there are mechanisms that ensure this), therefore, the risks of this office are the risks of the loan portfolio that it owns. Because the office is legally independent from bank X, and the portfolio was honestly bought, then the possible bankruptcy of bank X does not threaten this office (and the holders of its bonds) - the risks of the loan portfolio are successfully isolated from all other risks of the bank. And as a result of this operation, the bank has real money on its balance sheet instead of a loan portfolio with a weighted average life - the most liquid asset. Those. there is a shortening of the bank's assets.

About rates of attraction. Typically, securitization bonds are issued in several subordinated tranches. Assessing the risk of these tranches is a non-trivial matter, therefore, rating agencies almost always participate in securitization, which issue a verdict in the form of a rating, and investors then issue their verdict in the form of a rate (again, as a rule, bonds are placed at par, and an auction among investors gets a bet). The most recent tranche does not receive a rating (or two - if there are many tranches) - because these tranches are the first to take on losses, protecting the older tranches, and their ratings would be default if someone published them. The weighted average yield of issued instruments (all) is less than the weighted average portfolio yield minus approximately 1% (transaction overhead). At the same time, the yield of the junior tranche, which is not publicly placed, is “what will remain”, and although it is significantly higher than the yield of the senior tranche, it is inadequate to the risk of this tranche.

What is in this for the bank besides the shortening of assets? For example, the release of capital. There is such a Basel Agreement (the first has been adopted by the majority of civilized countries, the second is being implemented now. Russia, as far as I know, has not formally joined it, but banking regulation is moving in this direction), according to which bank assets must be secured by equity capital, depending on the riskiness of these assets. Base - 8%, i.e. if they say that an asset must be backed by capital at 100%, this means that for every $ of assets there must be 8 cents of equity. If I remember correctly (maybe not correctly - I moved away from this a long time ago), ordinary loans should be backed by capital at 100-150% - for simplicity, we will assume that it is 100%.

Now such an example on the fingers: Let's say we have a portfolio, the yield of which is Libor + 5%. The bank attracts funds "from outside" at Libor + 3%. Can you calculate the return on equity?

Now we are securitizing this portfolio. As a result, we issue the following notes: senior tranche - face value 85% of the portfolio face value, Libor yield +1, mezzanine - face value 10% of the portfolio face value, Libor yield + 3, junior tranche - 5% of the portfolio face value, Libor +10. (in fact, all this is more convenient to calculate in fixed rates - say, portfolio yield 10%, attraction rates - 8%, coupons - 6%, 8% and 15%, respectively, because then it will all swap, so there is not much difference ). What are we seeing here? The weighted average coupon is less than the portfolio yield minus 1% - we have an excess spread - have you counted? This excess return is usually obtained by the bank that securitized its loans. The bank also continues to service these loans, for which it receives a commission - say, 0.5% of that 1% of overhead costs (for mortgage loans it is usually less, for non-mortgage loans it may be slightly more).

Portfolio income is allocated as follows: 1. Overhead (excluding service fees) and taxes, if any. 2. Maintenance fee 3. Coupon for the senior tranche 4. Coupon for the mezzanine 5. Replenishment of reserves (if used in previous periods) 6. Coupon for the junior tranche 7. Additional maintenance costs (thus from this "empty" company the same excess profitability is displayed - for the company this is another expense, profit \u003d 0, and no headache with income tax, dividends, etc.)

The junior tranche is usually redeemed by the same bank X. Such an asset must be backed by capital 1: 1, i.e. for each tugrik of the asset there must be a tugrik of capital (if this tranche is bought out by a third-party bank, then the provision of capital should be in accordance with the risk / rating, but this practically never happens). And what do we have as a result? We had a loan portfolio of 100 tugriks on our balance sheet, for which we needed to have 8 tugriks of equity capital - now we have a note of 5 tugriks, for which we need to have 5 tugriks of capital and 95 tugriks of real money, which do not require equity backing - we released 3 tugriks of capital, which we can give to shareholders or to which we can attract another 34.5 tugriks, if the calculator does not lie to me (8:92), and again issue them in the form of loans or somehow place them, and for 5 tugriks of capital we have income: 0.5 tugriks of commission (0.5% of 100), 15% coupon on a note with a face value of 5 tugriks and excess return on the portfolio, which was considered two paragraphs earlier. What is the return on equity?

This is the picture at the beginning of the deal. The portfolio is depreciated - accordingly, the service fee is reduced, and (again, as a rule) only the senior tranche is depreciated first - resp. the weighted average coupon grows and the excess yield decreases. But the losses on the portfolio are attributed to the junior tranche - acc. its face value and the coupon due to the investor are reduced. But it still turns out to be profitable.

Something like this.

What is the summary? The fact that the senior tranche was placed at a low rate does not at all mean that this rate is the cost of funds for the bank, but it helps to reduce the borrowing rate. As for the money market conjuncture - the appetites for structured debt are very large, the question is whether Russian banks will be able to give what investors want - in terms of risks and profitability. And here the problems are primarily our Russian institutional ones.

web-dreamer.livejournal.com

Securitization is ... What is Securitization?

Securitization SECURITIZATION

(securitization) The process of replacing bank borrowing and lending by issuing securities such as eurobonds. The bank borrows money from savers (investors) and lends it to borrowers, charging a fee for both transactions, along with interest charges. The ability of the borrower to receive money directly from investors by issuing and placing bonds (or shares) among them allows reducing the costs of both borrowers and lenders. Securitization became widespread in the 1980s. with the development of technology and new forms of investment.

Finance. Explanatory dictionary. 2nd ed. - M .: "INFRA-M", Publishing house "Ves Mir". Brian Butler, Brian Johnson, Graham Sidwell, et al. General editorial board: Ph.D. Osadchaya I.M. 2000.

Securitization Securitization is the replacement of non-marketable loans and / or cash flows with securities freely tradable in the capital markets.

In English: Securitization

See what "Securitization" is in other dictionaries:

Securitization - - financing of certain assets by issuing securities. The word comes from the English securities - "securities". Securitized can be, for example, mortgage loans, car loans, leasing assets, etc. Methodology ... ... Banking Encyclopedia

securitization - conversion Dictionary of Russian synonyms. securitization noun, number of synonyms: 1 conversion (7) ASIS synonym dictionary. V.N. Trishin ... Dictionary of synonyms

SECURITIZATION - (securitization) A process that allows you to replace bank items by issuing various securities, for example, euronotes (eurobonds). The bank borrows money from savers (investors) and lends it to borrowers, receiving commissions from both. ... ... Glossary of business terms

Securitization Consolidation of multiple non-marketable assets (such as mortgage loans) into tradable packages. Individual mortgages are usually not suitable for trading in the market, as the transaction ...

Securitization - (securitization) the process of transformation of low-liquidity into liquid securities circulating on the capital market (eg, C. accounts receivable) ... Dictionary of Economics and Mathematics

securitization - From the word security, a security: 1. The transformation of a financial instrument of an IOU, contract, collateral, etc. into a security traded in the financial market. 2. In a broader sense, the process of converting low-liquid to liquid ... ... Technical Translator's Guide

Securitization - This term has other meanings, see Securitization (political science). Securitization (from English securities "securities") is a financial term that means one of the forms of raising financing by issuing securities, ... ... Wikipedia

Securitization - SECURITIZATION Transformation of debt obligations into securities. For example, converting bank loans (illiquid assets) into securities (easily marketable assets). Instead of going to the bank for a loan, the company ... ... Dictionary of Economics

securitization - securitization, and ... Russian spelling dictionary

Securitization is the issue of securities secured by a package (pool) of mortgage loans. Transformation of mortgage debt into mortgage-backed securities ... Mortgage. Glossary of terms

dic.academic.ru

Securitization of assets

Asset Securitization is a way of transforming a bank's debt obligations into liquid capital market instruments by issuing debt securities backed by a pool of homogeneous assets. Securitization of assets is an off-balance sheet source of formation of the bank's financial resources. Sometimes the securitization of assets is called asset collateral or a form of financing by issuing securities backed by cash generating assets.

The essence of the securitization of assets is that a certain part of profitable assets (mortgage or consumer loans, car loans, leasing assets, commercial real estate, pledges, etc.), the bank takes off its balance sheet and refinances them by issuing securities that are sold on the open market. These asset pool backed securities are called Asset Backed Securities (ABS). When making a transaction of securitization of assets, the rights of claim that are objects of securitization must be homogeneous.

The purchase of securities by investors entitles them to receive income in the form of a fixed interest, the source of which is the interest and principal payments on the securitized assets (from the cash flows of the pool assets).

The purpose of asset securitization is to redistribute risks by transforming bank assets into securities on the basis of refinancing. Bank assets can be refinanced either by issuing asset-backed securities (Asset-Backed Securities - ABS), or by obtaining a syndicated loan (Asset-Backed Loan).

When assets are securitized, financial assets are debited from the bank's balance sheet, separated from other assets and transferred to a specially created financial intermediary - a Special Purpose Vehicle (SPV), and then refinanced in the money or capital market. The purpose of the establishment and operation of an SPV is to separate the assets subject to securitization from the originator, and, accordingly, reduce its risks. In Ukraine, in the implementation of the "classical" securitization of mortgage loans, the SPV functions are performed by the State Mortgage Institution (SMI), established in 2004.

Depending on the issuer of securities, the securitization of assets is divided into "classical" and "synthetic", and depending on the level - into primary and secondary. In the case of “classical” (off-balance sheet) securitization of assets, the issuer of securities is the SPV, to which the originator (the creditor of the monetary obligation) sells the right of claim and thus writes off the assets from its balance sheet (withdraws from the balance sheet).

"Classic" securitization is based on the principle of "true sale" - "final" or "irrevocable sale". The Law of Ukraine "On Mortgage Bonds" stipulates that mortgage assets acquired by SMIs are deemed to be acquired irrevocably, that is, without the right to replace them, repurchase or transfer them.

In the case of “synthetic” securitization of assets, the issuer is the originating bank, which has formed a portfolio of relevant assets and independently issues debt securities on its own behalf, secured by rights of claim to this portfolio of assets. Unlike the “classical” one, within the “synthetic” securitization of assets, it is not a pool of assets that is sold, but a certain risk associated with the pool of assets. The pool of assets remains in the ownership of the originator. The payment of dividends to the owners of securitized securities (investors) is carried out at the expense of funds received by the bank from borrowers and other sources (originator's profit, borrowed funds, etc.). An example of “synthetic” securitization of assets is the issue in 2007 by Ukrgasbank of ordinary mortgage bonds in the amount of UAH 50 million. The advantage of this type of securitization is its relative simplicity and low cost compared to “classic” securitization. At the same time, the issuer bears the risk of early repayment of the mortgage loan by the borrowers and the credit risk.

The method of securitizing assets was first used in the United States in 1970 by the Government National Mortgage Association (Ginnie Mae) to develop a concept for the transfer of mortgage-backed securities and a program to ensure that interest and principal payments are paid on time for a specific set standardized collateral objects. This program involved the collection by financial institutions (banks and savings and loan associations) of a certain package of mortgages guaranteed by GNMA, and the sale of this package to a third party - institutional investors. When the issuers of the collateral made payments on them to the financial institution, he transferred the guarantee to the owner, sending a check for the total amount of all payments. Since the guarantor for the payments was GNMA, the securities transferred had a low level of default risk.

Securitization of assets based on collateral and mortgage loans has become widespread over time. Since the mid-1980s. in the United States began the securitization of assets based on auto loans, credit card receivables, commercial and computer leases, and the like.

Securitization of assets is most widespread in the United States. Until recently, the asset securitization market has developed rapidly. In the US, ABS circulation exceeded $ 3 trillion. USD. Securitization of assets is of the greatest interest to banks that have significant portfolios of homogeneous loans, for leasing companies, real estate funds and developers.

As of 01.01.2011, there were 4 transactions of securitization of financial assets in Ukraine. PrivatBank performed cross-border securitization under UK law, and Ukrgasbank, the State Mortgage Institution and Oschadbank issued ordinary mortgage bonds in accordance with the Ukrainian Law on Mortgage Bonds.

Financial crisis 2008-2009 showed that a significant part of the issued securitized securities, especially secondary securitization, had significant risks that were transferred to other market participants, which contributed to the intensification of the crisis. In an effort to protect themselves, banks resorted to even more borrowing in order to further securitize. For example, the American investment bank Lehman Brothers bought mortgage loans for the purpose of securitization and their subsequent sale. Over time, individual banks began to buy these same securities on the market from other banks. Subsequently, due to the deterioration in the quality of securitization of assets, the flow of payments to investors slowed down or stopped altogether, which undermined confidence in this type of financial products and led to a decrease in their market value and, as a result, to losses for investors. Lehman Brothers went bankrupt in 2008.

In many countries, prior to 2010, it was allowed to include securitized securities in Tier 3 capital. However, since 2011, the Basel Committee on Banking Supervision has practically canceled this practice. Since 2010, in accordance with the Dodd-Frank Act, the requirements for securitized securities in the United States have been significantly tightened. Companies that issue securities secured by mortgage loans will be required to leave part of the risks (up to 5% of the total credit risk) if the underlying mortgage loans do not meet risk-free standards). At the same time, issuers are required to disclose more information about underlying assets and analyze their quality.

(See Conduit, Main Servicer, Prospectus, Structured Finance, Mortgage Asset Management).

discovered.com.ua

Securitization. What is asset securitization?

Securitization is a relatively new concept. It first appeared in the United States 30 years ago. Developing rather quickly in the vastness of the financial market of its native country, it has become the subject of consideration by other powers.

So, about 25 years ago, securitization appeared in Europe. She came to us recently.

The very word securitization, as most people think, comes from "security" - protection. However, it would not be entirely appropriate to assert about this.

Security, it would seem, is directly related here, but not in the sense when the assets are insured, but rather, where there is a wide range of services aimed at a unique product of its kind.

Securitization of assets makes it possible to simplify operations with them, as well as make them more valuable in paper equivalent. In this case, the risks are distributed equally between the investor, the owner and the interested party.

So what is the product - securitization? This is a new financial instrument that allows you to create securities for a number of assets, usually low liquidity.

By grouping assets, we get securities, which are characterized by a wider range of opportunities for transactions.

Securitization Asset Management

Assets are managed according to the traditional method. There is also a synthetic one, but today it is not used in Russia.

Business loans, which are expressed in mortgage agreements with banks that were used to obtain entrepreneurial assets, are managed through the traditional method of securitization.

This method involves separating high quality assets from low quality assets. Why is this done, and most importantly, how?

The answer to the last question is simple, but translating it into reality is problematic. High quality assets are removed from the bank's balance sheet as they are affected by the risks of the financial institution.

Roughly speaking, assets bear the bank's risks, and this is an extremely negative factor for them. They are withdrawn through special companies that do not bear financial risks and simply contain these assets in their turnover.

However, not everything is so simple. The organization that sells assets, which stores them on its balance sheet, is largely limited. More precisely, it is strictly limited, and not every company can use its services.

After the organization has collected the required number of assets, it issues them in securities backed by the collected assets.

Securitization participants

Securitization involves participation in the process of converting assets into securities. It is also important that many financial and credit management tools do not contradict each other.

Their principles are comparable to each other. This also includes a bill of exchange.

In general, securitization participants are as follows:

originating bank (the bank that issued loans, issued funds). He performs the functions of a service agent, that is, serves a loan;
storage organization (investment company). Accumulates assets by purchasing them from the bank. Issues them in securities;
backup service agent. The services of a reserve agent are needed when the bank is unable for a number of reasons to service the loan;
guarantee. Supports the organization's loan. As a rule, insurance companies act as guarantors;
paying agent. He is responsible for the management of securities: issue, tranche;
underwriter. Participates in the structural preparation of the terms of the transaction, determines and maintains the prices of assets and securities for them at a certain level;
consulting companies. They solve taxation, accounting, legal problems;
rating company. Determines the rating of securities and distributes them;
investors. They invest funds.

Participants in securitization can be parties that draw up a mortgage, loan agreements, bond loans.

Pooling in securitization

A pool is a complex of similar loans, which are grouped according to the most similar conditions.

Securitization takes place after the pool is formed - the same type of agreements by the originating bank are combined.

This is done for a more accurate and accurate analysis of risks and the volume of assets that are subsequently backed by securities. The pool should not include problem loans, as it contains assets with minimal risks.

After differentiation of loans, the sale of assets can only be started.

Apartment on credit for a young family

Loan at 6 percent per annum

Securitization is the attraction of financing for certain types of assets by issuing shares, bonds and other types of securities. This procedure can also be applied to mortgages, car loans, etc.

The essence of the securitization process

So what is this method and what is it used for? The easiest way to understand what this financial transaction is, by example.

Let's assume that the bank has a portfolio of liabilities issued under mortgage loans, leasing agreements and several other types of loans. For the purpose of freeing up its own funds, the lender issues debt bonds, which are secured by the right to claim debt on these assets.
Another option is when a separate organization is created that acquires assets. This firm is financed by issued securities. As a result of this operation, the bank reduces existing risks and gains access to new financial opportunities.

Nowadays, the securitization process can be found not only in the financial market. Let's take an example again. The company is engaged in the construction of an office center. By using a securitization procedure, it can sell future rental income and thus raise funds initially.

The securitization process consists of three stages.

Assets are selected
Selected assets are pegged
For the purpose of securing these assets, securities are issued.

In Russian banking practice, such large banks as Bank of Moscow, Gazprombank, Russian Standard and others have resorted to the securitization procedure.

The concept of securitization and its types

Having analyzed all the available definitions of asset securitization, they can be divided into two types:

Securitization as a way of transferring illiquid assets to liquid ones using the stock market.
Securitization process as a certain sequence of actions.

The mechanism of this process is a rather complex operation consisting of many stages with the participation of several financial institutions and using various financial instruments.

An investor who purchases bonds, giving him the right to receive, at the end of its validity period, the amount of the initial value of the security plus interest.
A borrower who has applied to a bank for a loan, which pays the bank the amount of the debt and the accrued interest.
At the same time, in practice, at the moment, various intermediary organizations can be added that perform the process of issuing, placing or redeeming securities.

Securitization in Russia

This procedure has become part of Russian banking practice relatively recently.

The first such deals were carried out by Russian commercial banks in 2005, when Soyuz Bank, Russian Standard Bank and Home Credit Bank refinanced their consumer and car loan portfolios. These transactions were carried out with the participation of foreign companies; to attract foreign capital, foreign bonds were issued.
In 2007, Gazprombank carried out the first mortgage loan securitization transaction. In this case, the transactions fell under the law "On Mortgage Central Banks", which allowed the issuance of bonds secured by mortgage loans from the bank's balance sheet, or with the involvement of a mortgage agent.
The next three years after the first transactions in the Russian financial market can be characterized as a rapid growth in the number of securitization transactions. The assets for which the securities were issued were not only portfolios of consumer loans, but also leasing and factoring payments, car loans and, of course, mortgages. All transactions carried out during this period were cross-border, that is, the buyers of the portfolios were foreign companies.
Due to the outbreak of the financial crisis in 2008, the external market was virtually closed, and cross-border transactions began to be concluded again only four years after the start of the crisis.
In the same year, for the first time in Russian banking practice, a securitization transaction for a portfolio of consumer loans in the domestic market was implemented. From that moment on, a securitization scheme for all types of assets was developed by issuing national bonds.

The further fate of the securitization of assets in the Russian banking sector is very much dependent on the development of the legal framework.

As part of addressing this issue, a draft of amendments to a number of existing laws and codes was prepared, aimed at developing the securitization market in the Russian financial sector.

The procedure for taxation in relation to transactions for the securitization of assets;
A new way of securing obligations;
Functions and powers of the state body in charge of securitization transactions in the securities market;
The list of rights of claim that can be assigned;
Bankruptcy proceedings;
Consideration of peculiarities in currency regulation;
List of requirements for the issuer issuing securities as part of the asset securitization process;
Establishment of a specific list of assets admissible for securitization transactions.

This bill was implemented through the adoption in 2014 of Federal Law 379-FZ, designed to create an effective legal regulation of the process of securitization of assets in Russia.

The emergence of legislatively enshrined rules governing the process of securitizing assets is an important evolutionary step in the development of the Russian securities market.

“The multibillion-dollar loans they call
by different names: CDO, CMO, ABS, MBS.
I believe only 75 people in the world know
what is it ... ”Gordon Gekko, Wall Street 2.

You will be 76th! Go…
Securitization is a financial transaction in which various types of assets that provide interest income (residential and commercial mortgages, car loans, student loans, etc.) are pooled, on the basis of which they are issued and placed among a wide range of investors.
In a broad sense, this is one of the ways of financing, or, more precisely, refinancing, future interest income. We are talking about a mechanism in which assets (read loans) are written off from the bank's balance sheet, separated from the rest of the property and sold to some special intermediary (Special Purpose Vehicle - SPV), which, in turn, issues securities (usually these are debt obligations). secured by these assets, and sells them on the market.
Schematically, the securitization process looks like this:

Let's consider the stages of securitization in more detail:

Creation, pooling and sale of assets. Assets, in this case, are loans issued by the bank, which bring regular interest income during the period of validity. The bank collects many, many, many retail loans into one pool (indicative portfolio) and sells it to SPV. When such a pool is realized from the Bank to SPV, a) all monetary obligations of the borrower of the Bank are transferred (now interest income and the loan body are already ... “not yours, and not even mine, this is now their tooth © ... but SPV income b) all credit Bank risks (if the borrower goes bankrupt, then the problems of the Indians (SPV), the sheriff (Bank) do not care).

Benefits
1. For the Bank - improvement of balance sheet indicators, in which assets are removed from the balance sheet, increases, and decreases capital requirements. Securitization acts as a source of additional financing for current operations. Separately, it should be noted - the reduction in funding costs. When assets are sold, they are separated not only from the Bank's balance sheet, but also from its credit rating, which makes it possible to raise funds at a lower rate. For example, a B-rated company with AAA-rated assets could, by securitizing these assets, fund using a higher rating, which is cheaper than raising funds with a B rating.
2. For an investor - an opportunity to invest in various types of assets with varying degrees of risk and return.

disadvantages
1. For the Bank - it is required to maintain an administrative structure to service receipts; the operation requires costs for registration and execution of the transaction - legal, rating, underwriting.
2. For an investor -

Mortgage securitization - english Mortgage Securitization, represents a departure from traditional mortgage lending models, in which the issuing financial institution is the holder of the debt and is at risk of default by the borrower for the entire duration of the contract. Instead, mortgage securitization is a process in which lenders issue mortgages and then sell them to other organizations that are able to combine a large number of mortgages into mortgage-backed securities designed to distribute credit risk among a multitude of investors. In this case, the banks that originally issued mortgage loans are freed from the long-term risks associated with maintaining a large mortgage portfolio. In addition, they have an incentive to issue as many loans as possible in order to receive the maximum income stream. Mortgage securitization became widespread in the 1990s, but almost completely stalled due to the 2007-08 US mortgage crisis, when the US housing market crashed.

Diversification of risks through securitization involves the sale of debt obligations to organizations that are able to transform them into securities available for purchase by investors. Mortgage assets are often sold to a specialized entity ( english Special Purpose Vehicle, SPV) or a trust to guarantee the investor's right to receive payments by repayment by borrowers of the principal (principal) and interest on mortgages. Thus, the risk of default on the mortgages underlying mortgage-backed securities is transferred from the issuing banks to the investors. This market has traditionally been attended by private investors, municipalities, corporations and other institutional investors. Loans pooled through mortgage securitization may include mortgages for the purchase of both residential and commercial real estate.

In the US, the largest players in the mortgage securitization market are three government-sponsored agencies: Fannie Mae, Freddie Mac, and Ginnie Mae. In this case, the securitization itself is carried out in one of three ways. Debt securities can be pooled and sold as pass-through securities ( english Pass-Through Securities). Alternatively, interest and principal repayments on loans in the pool can be split and sold as separate cash flows.

The third option is to sell the secured mortgage obligations ( english Collateralized Mortgage Obligations, CMOs), also known as tranches, which carry varying degrees of risk to investors. Tranches with a high credit rating (class A tranches) have a minimal level of risk, but also offer very moderate returns. In contrast, tranches with low credit ratings carry high risk but have the potential to generate high returns.

Proponents of mortgage securitization often emphasize the fact that this process not only makes mortgage lending more affordable, but is also a new investment vehicle that allows investors to generate substantial returns. Opponents argue that the practice of mortgage securitization has deepened the global financial crisis significantly. However, most of the responsibility lies with rating agencies and investment banks, which underestimated the risks of mortgage pools for investors.

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