Creating Mortgage-Backed Securities through Securitization

Securitization pic

Securitization
Image:

An experienced financial trader, Dirk Coetzer is the managing director of Firminy Equity Fund and ICON Capital Sarl, LLC. From his office in Luxembourg, Dirk Coetzer oversees the fund’s alternative investments and securitizations.

Securitization is the creation of liquid assets from illiquid assets through a tailored financial process. The mortgage-backed security (MBS) is perhaps the most recognized form of securitization. An MBS is formed through an intricate process that begins with a financial institution (the originator) collecting mortgages secured by properties. The originator then bundles these mortgages into groups based on factors such as their level of risk, their due dates, and their remaining balances. Each individual group is then presented as collateral for an MBS. The MBS is issued by an investment bank or a regular bank, and the security is sold on the secondary mortgage market, giving it liquidity.

Creditors benefit from securitization because division of ownership reduces the associated risks of holding an MBS. Investors, on the other hand, get to diversify their portfolios and earn a return derived from both principal and interest payments on the mortgages.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s