Credit card securitization

Unlike closed-end loans, disposable income is more uncertain about future cash flows. Therefore, ABS structures that use this type of alignment need to be more complex to give investors more ease to pay. Accounts included in the security pool may have a balance that grows or decreases during the ABS lifetime. Consequently, upon receipt of the access and distribution of benefits, any other amounts will reimburse the person who established them. During the period in which they receive ABS, the founder may be asked to sell additional accounts to the collector to maintain the minimum security dollar if accountants pay their amounts before the predetermined rates. Credit card securities are the most common form of recyclable ABS, while home loans have become an increasing source of ABS collateral. ABS credit cards generally cover two phases of the collateral life: the initial phase in which the bulk of the bond remains unchanged and the amortization phase in which investors pay. Each stage has a specific cycle. Typically, a security document identifies a specific group of accounts. These specifications can cover not only the initial loan pool but also the investment portfolio that the new account can provide. The preferred way to provide savings secured by credit funds is the basic form of trust with an `account` financed up to a predetermined amount of the overdraft account.’; Ie interest and income, services and other payments with loss of credit. With credit card income, loan income after the loss of debt is often much higher than the income paid to investors. After the advertising account is collected at a predetermined level, the excess income is returned to the donor. According to GAAP, financiers are required to receive residual income according to the fair value of the future. In fact, this value will be proportional to the current value of the net expected performance. In addition, investors are required to periodically measure assets to consider changes in fair value that may arise as a result of interest rates, actual debt losses, and other factors related to current cash flows.

Security Basis What does security support?

Credit card assets (ABS) are fixed bonds that are secured by the card’s cash flow. When companies collect credit card fees, interest and fees, cash payments, and bond obligation fees are collected. The popularity of these security measures began in 1987 with the increased use of credit cards.

Credit card protection

Security is about collecting money from debt and selling it to others as paper. Credit card issuance began in the late 1980s as banks looked for a new source of credit card support.

Basic structure

The basic structure was used before 1991 when issuing credit cards. The credit card issuer places the invoice and requirements in the hands of the lead trustee. The main trust is now selling securities to investors. The credit card issuer is interested in the primary trust and interest, the authorities, and the late return to the bank.

Key points of the trust structure

The main structure of bills of exchange is also known as issued securities (IT) and supports bonds with collectible credit card accounts and collections of accounts. The difference between this structure and the earlier structure is that it gives the tape more flexibility when it matures. With the development of ABS credit card issuers, they usually buy various securities. When this happens, the distributor will issue a parallel certificate. Parallel certificates allow owners to sign up for previous major securities.

Investor rights and seller rights

Investor interest is the amount of principal owed to ABS investors. The interest of the seller is the residual interest in the trust that the credit card issuer must maintain. The benefit to the seller is huge because when the bank itself requires asset-based securities, it aligns the bank’s credit card with other investors.

What is the life cycle of asset security?

There are two main periods after the issuance of credit card securities. These two periods is the renewal period and the depreciation period.

Reversal

During the cycle, investors will not receive the principal. Instead, investors will only receive interest. This allows the publisher to use the principal to purchase new receivables. During this period, the issuer may also use the principal it collects to finance short-term credit card loans.

Depreciation period

At the beginning of the depreciation period, the bulk is collected to repay investors in the ABS system. Unlike corporate bonds, corporate bonds pay the principal only once, and after maturity, the principal of ABS credit cards is paid gradually over a period of time. In the case of a regulated depreciation, principal payments during the period of the depreciation will be paid in installments. On the other hand, in the collection under control of principal payments, they are deposited in a confidential account every month and stored until maturity.

Distribution of cash flows

Investor interest is the amount of principal owed to ABS investors. The interest of the seller is the residual interest in the trust that the credit card issuer must maintain. The benefit to the seller is huge because when the bank itself requires asset-based securities, it aligns the bank’s credit card with other investors.

Investor rights and seller rights

Cash flow allocation is the process of transferring principal payments and interest to credit card accounts via ABS. It also involves distributing cash flows to investors and sponsors, which may be more complex.

Groups

Collecting bodies is one way to manage cash flow. First, cash flows are distributed between the shares of the investor and the seller. Investor interest is further divided into smaller groups according to security features.

Key collection

Assigning a set of keys to a series depends on the ABS life cycle. As mentioned earlier, this principle is only given to investors during peak investment periods. For ABS in the cycle of use, the principle will be redistributed and shared by other series.

Collection and distribution of financial expenses

The main fees charged by credit card resources are interesting on outstanding balances and overdue fees. When expressed as a percentage of total income, it is called a package income.

Major discounts, exchanges, returns

Discount is a process that encourages packaging production and short-term distribution and is used when the allocated excess is much smaller to avoid early amortization. The income is included as part of the cost of financial expenses and included in the calculation of the income package. It is used to measure excess emissions. The swap is a fee paid to the bank that issues your credit card to compensate for your credit risk. There is credit risk because banks give credit card users a grace period during which they do not have to pay the amount used.