Talk:Securitization

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Contents 1 Hong Kong 2 Jargon-y 3 Doing a total rewrite of this page 4 To do list for this article 1/25/07 5 Translation 6 Error in Diagram? 7 Too Narrow 8 History section 9 Defining " Securitization " 10 Definition - changed

[edit] Hong Kong

"The deal fell through later in the month and the local government authroities plan to reissue the securities in late 2005."

What? Isn't this "The Link REIT"?--Jerryseinfeld 17:59, 2 Apr 2005 (UTC)

I don't fully understand the given definition of securitization. Does it essentially mean that mortgages (for example) are bundled into essentially homogenous packages so that they can be traded/sold?

Not completely - the mortgages are bundled and sold to an SPV, who issues bonds backed by these mortgages' cash flows and underlying value. The bonds are then traded in the market. Maurits.

COMMENT BY A DIFFERENT PERSON "Securitization" is also used to describe "Insurance-Linked Securities" (ILS) (Go to SwissRe.com and search on ils.) This article should either discuss ILS or else link to a separate article about them. The point is, securitization is more general than just ABS.

Question : From what I understand, securitization is a way to transform illiquid assets into liquid assets. For example, a company that needs cash could sell one of its assets (like a patent for example) and its associated future cashflows against cash to any investor. Is this a good example of securitization ?

Answer (from Rutlog): It's not a very representative example of securitization:

(1) Securitization usually involves issuing more than a single tranche of liabilities, each one having its own rating/maturity. But when those tranches are all repaid from a single, undiversified cash flow source, they are 100% correlated to the default probability of that source, and that defeats the purpose of securitization.

(2) When you securitize intellectual property, a large portion of the value that you expect to realize over time is not yet under contract, which means that those receivables do not yet exist. Hence the cash flows are more highly correlated to the default risk of the seller than for securitizations of assets backed by existing receivables.

(3) It is not impossible but it is difficult to value patents if the business model for the patent has not yet been established. Hence intellectual property is the most difficult type of collateral to securitize: more difficult than securitizing whole businesses and much more difficult than securitizing loans or bonds.

[edit] Jargon-y

This article needs a *major* rewrite. Anyone who could understand that mumbo-jumbo wouldn't look the subject up on Wikipedia. —The preceding unsigned comment was added by 66.108.113.91 (talk) 05:33, 10 December 2006 (UTC).

I don't think the mumbo-jumbo factor has been eliminated in the current version. There is too much reliance on third party quotes of authors who, unfortunately, are themselves relying on third parties. Rutlog 20:09, 19 June 2007 (UTC) Rutlog

I understand that finance is a particularly complicated subject but consider the audience that an article like this will draw. Perhaps a better effort could be put in to explain exactly what a security represents without forcing a user to further reference other Wikipedia pages. Obviously this can sometimes be an unfortunate necessity but I think in this case an effort should be made due to the expansive and complicated nature of the subject. Bellfazar (talk) 06:21, 8 December 2007 (UTC)

[edit] Doing a total rewrite of this page

This will take me about a week or two but when it is done it should answer all general questions about securitization --DrewWiki 14:41, 22 January 2007 (UTC)

Thanks for the spelling and grammer help, I just want to get the article done and i'm notoriously bad at my own editing, but I will try to proof read it earlier --DrewWiki 22:13, 22 January 2007 (UTC)

[edit] To do list for this article 1/25/07

Sequential Payments/Cash Flow Waterfalls - That section needs to be moved to the page Securitzation transaction

We need to add graphs and some charts and tables and maybe a picture or two

Important, Unique, or Interesting Securitizations - This section needs to be expanded —The preceding unsigned comment was added by Drewwiki (talk • contribs) 01:57, 26 January 2007 (UTC). --DrewWiki 01:58, 26 January 2007 (UTC)

Most of the outside links are commercial spam, and should probably all be removed. There is also a lot of potentially "hidden" spam in the text, like book promotion, or at least puffery with unnecessary quoting of sources that are not that authoritative.--Gregalton 18:17, 15 February 2007 (UTC)

[edit] Translation

As I saw a translated page in Japanese is 証券化, is the link can be put in 'Language' box...

[edit] Error in Diagram?

In the section titled "What Is Securitization" there is an accompanying diagram. In the diagram there is an arrow in the lower left corner labeled "Sales price of securities". Shouldn't the arrow point up? JamieNettles 18:42, 8 March 2007 (UTC)

I think this is fixed in the new, free version of the diagram - Image:Securitization-en.PNG.--Daggerstab 12:36, 25 September 2007 (UTC)

[edit] Too Narrow

This page does not deal at all with the massive expansion of securitization into insurance, hard assets and business areas. The life insurance section formerly here was simply wrong. —Preceding unsigned comment added by 69.121.26.24 (talk) 17:24, 2 September 2007 (UTC)

[edit] History section

Role of securitization in the current economic crisis should be described in the history section. --Doopdoop (talk) 23:20, 23 March 2008 (UTC)

[edit] Defining " Securitization "

a) The whole definition of "Securitization" is kinda dodgy: "Securitization is a structured finance process in which assets, receivables or financial instruments are acquired, classified into pools, and offered as collateral for third-party investment.[1]" ..."assets, receiveables or financial instruments" ... financial instruments not assets? are receiveables not assets? the definition is of the kinda as "fruits, apples, or pears" How about: "Securitization is a process in which assets are acquired, classified into pools, and offered as collateral for third-party investment."

b) It is not clear from the main definition, that an outcome of securitization is an Asset-Backed-Security (ABS). Or is it possible to securitize something else than an asse-backes-security?

Don't get me wrong, I think the article is great, but still we should try to make at better.

/Fin_Pat

a) How about Securitization is a process in which assets (such as receivables or financial assets) are acquired, classified into pools, and offered as collateral for third-party investment.?

b) I'm not quite certain what you mean by this. I think it is fairly clear that an ABS would fit the above definition. Take retail credit card loans as an example:

• Each loan is an asset to the bank securitising them
• The bank underwrites these loans and thus acquires them
• The loans are pooled and form the underlying collateral of the resulting ABS

I'm not sure if this helps but I could have misunderstood what you were asking for.

Zain Ebrahim (talk) 15:16, 25 March 2008 (UTC)

b) I was asking if an outcome of securitization is always ABS, or if some other assets which is not asset backed security can be outcome of securitization? (for istance are CDOs a subgroup of ABSs?) ... If only ABS can be the outcome of securitization (and nothing else) then securitization could be defined as " Securitization is a proces of creating Asset-Backed-Securities", am I right? /Fin_PAt

Generally ABSs are a specific type of securitisation transaction with RMBS and CMBS being other types. I know that the ABS article indicates that RMBS falls under ABS but I haven't come across this in industry where Mortgage-backed security transactions are not the same as ABS transactions.

I do see your point though: Mortgages are assets which back securities but these names are seldom accurate.

Zain Ebrahim (talk) 10:43, 26 March 2008 (UTC)

Interestingly, article on Mortgage-backed security indidates that MBS is an ABS. I know that industry terms can be quite inconsistent with theory. But what is the term ABS used for, if not for MBS?

And how about Collateralized Debt Obligation, CDOs are also outcome of securitization, but do they also fall under ABS?The article on ABS seems to suggest so. /Fin_Pat —Preceding unsigned comment added by 92.230.49.219 (talk) 00:28, 27 March 2008 (UTC)

Apologies for the delay - I've been away for a while.

I haven't come across MBSs referred to as ABS but (like I said above) it wouldn't theoretically be wrong to do so. In my experience ABS is used to refer to credit card loans, auto loans, receivables, small business loans, leases (e.g. equipment or aircraft) et cetera.

If you go to Fitch's website [1] and hold the mouse-cursor over Structured Finance, it will show you the different classes. ABS is listed separately from the various MBS transactions and CDOs fall under structured credit.

Zain Ebrahim (talk) 15:14, 22 April 2008 (UTC)

[edit] Definition - changed

I changed the definion of securitization to make it more clear. Quoting some dicstionary might be nice, but the marekt is somewhere else, then the authors of disctionaries. The wikipedia reader is surely expecting a better and more accurate definiton. —Preceding unsigned comment added by 195.128.2.68 (talk) 16:30, 28 March 2008 (UTC)