The process of turning non-tradable assets into tradable securities is known as securitization. It is a kind of structured finance that divides risk by pooling debt instruments and issuing new securities that are backed by the pool.
Instead of selling assets to raise money when a bank or other financial institution needs more money to finance a new facility, the latter chooses to sell a portion of the loan to a Trustee called a Special Purpose Vehicle (SPV), who will then collect the money upfront and remove the loan asset from the institution’s balance sheet. Bonds are issued to investors by SPV, which holds the asset as security on its balance sheet. It pays the asset’s creator with the money received from the sale of those bonds.
Process Flow for Securitization
Following are explanations of the functions and duties of various securitization structure components:
Securitizations vary widely from one another. For example, brokers may not be involved in other agreements, or the lender and the servicer may occasionally be in the same organization.
Audits of Securitization
Securitization is the process of turning debt into bonds or pass-through certificates, which are securities with principal and interest payments drawn from a pool of loans, such as mortgages.
Many people are unaware that the first mortgage was securitized in 1909. However, that practice became quite popular over the next 20 years, up until 1929, when the extreme leverage of stock pools, along with some financial manipulation and speculation by Goldman Sachs, caused the 1929 stock market crash.
Sounds recognizable? It ought to. Today’s events are not very novel; they have occurred before.
Today, when we discuss securitization, we typically refer to CDOs, CMOs, CLOs, ABS, MBS, CDS, or ABS of CDS, synthetic CDOs, CPDOs, securitized notes of various kinds, or ABCP conduits—alphabet soup, in the eyes of the majority of people.
Undoubtedly, such financial innovation has drawbacks, but the greater use of derivatives and securitization has largely made it possible to manage capital and risk more effectively. Companies that have access to more money use it to support innovation and expansion, which boosts productivity for the American economy. Mortgages were, however, securitized in historic quantities over the past ten years as they moved at the speed of light, and frequently both the laws governing the transfer of real estate and the rules governing securitized pools of loans were disregarded. And the outcome has served as the foundation for the newly growing legal specialty known as foreclosure defense.
Before securitization’s resurgence in the 1970s, a bank or Savings & Loan would create a mortgage and hold it on its books, frequently for the duration of the loan. However, today’s securitized mortgages are transferred between various parties before arriving at the securitized trust, where they serve as the security for the sale of bonds and pass-through certificates purchased by investors around the globe.
As one might anticipate, several laws and rules govern the transfers involved in the securitization process. But unfortunately, the truth is that many loan originators, commercial banks, and Wall Street investment bankers frequently failed to follow them during the most recent real estate boom. When that happens, customers use the lenders’ disregard for the law to fight back against unjust treatment by going to court and demanding fair judgments.
What you’ll discover in your Property Solutions Report is:
For information on foreclosure defense call us at (877) 399 2995. We offer litigation document review support, mortgage audit reports, securitization audit reports, affidavit of expert witness notarized, and more.