Securitization by Edu Pristine

Author of lecture Securitization

Edu Pristine

Customer reviews

Excerpts from the accompanying material

... The process starts when an originator, who originates/owns the assets (e.g., mortgages or accounts receivable) which has predictable cash flows. A SPV is created: new legal entity. Originator sells assets to SPV. The SPV aggregates assets, pools and repackages ...

... 8. Subscription to securities. 10. Cash flows. 11. Servicing of securities. Original Loan. ...

... Seller: Seller originates loans and receivables with predictable cash flows. Arranger: Originator/seller appoints an arranger for the transaction (an investment bank). Responsible for taking the transaction from deal origination to closure ...

... Assesses the counterparties to the transaction and their impact on the deal. Evaluates the legal structure based on independent legal opinions. Independent legal counsel. ...

... a special purpose entity (SPE) can be a constructed as a corporation or as a trust. ...

... The grantor trust will then issue securities backed by the asset. By increasing the complexity of the transaction and by introducing another layer into the ...

... Overcollateralization: This is when more assets are pledged to back the structure and the assets exceed the liabilities. Direct equity issue: SPE issues debt with face value ...

... similar to a direct equity issue method in which the originator is tied to the performance of the assets it sold and it might not be considered as a true sale. ...

... The tranches are as follows: Senior Tranche: $100mn. Subordinated Tranche A: $50mn. Subordinated Tranche B: $50mn. Equity Tranche: $ 20mn. Total: $220mn. ...

... Calculate the gross and net excess spread. Solution Gross Excess Spread = 7.5% ...

... The SPE protects the senior tranches from a loss by purchasing insurance. Letters of Credit (LOC). The SPE obtains a LOC for the senior dollar amount. When losses surpass the subordinated threshold the credit line ...

...  Instead an extendable note with an intermediate and final maturity date can be issued if on the interim date, the principal and interest waterfall structure is strong, the note is redeemed if otherwise the security is continued till maturity. Liquidity reserves: Cash reserves are built to ...

... This allows the SPE to draw from a line of credit. The originator then is liable to repay the principal and interest. The use of LOCs are reduced recently ...

... floating-rate liability exceeds the cash flow provided by the underlying fixed-rate collateral. If their maturities differ or they have different effective lives, then changes in the underlying interest rates can narrow the ...

... The homeowner will then purchase insurance to protect against potential losses. Then the three GSEs Fannie Mae, Ginnie Mae and Freddie Mac purchase these mortgages and issue bonds backed by the principal and interest of the underlying mortgages. Since GSEs are credit enhancers ...