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What is securitisation of dedt?

Updated: 8/18/2019
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13y ago

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I'll give you a simple answer to this question. If you want a more elaborated answer feel free to email me at ddresearch@aim.com

The securitization of debt is a process in finance by which risk is distributed by aggregating assets in a pool. Then new securities are issued backed by the assets and their future cash flows.

I will use the housing market crisis to show an example. One of the housing crises was triggered by the increased used of the Collateralized Debt Obligations. This were pretty much securities or stocks that where created by pulling together sub-prime mortgages. Other less risky mortgages were also added to this pools. The new securities that were created by investment banks (this is the securitization process) had as earnings the cash flows of the mortgages. Which is in simple terms the monthly mortgage payments people made to their houses.

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