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Securitised Debt - Coggle Diagram
Securitised Debt
Asset Backed Securities
Non mortgage loans
Sensitive to US economy and consumption health
Secured by some type of colateral
Student loans
Consumer loans
Auto loans
Process
lender extends credit to different
the lender sell this loans to
a private financial institution that issues ABS
Borrowers make their monthly payments
The payments are passed on from the lender to the ABS issuer
The ABS issuer distributes the cash flows to the ABS investors
mortgage backed securities (MBS)
Mortgage loans pooled together
Investors decide to invest in different tranches according to its credit
rating
Borrowers have an option to partially or fully prepay their mortgages
Process
Mortgage bank lend money to different home buyers
Bank sells residential mortgages to an agency which issues MBS
Payments made by homebuyers pass trough to the MBS issuer
MBS issuer redistribute the cash flow to MBS investors
Types
Agency MBS
Ginnie Mae
Government entity within the US Department of
Housing and Urban Development
Non-Agency MBS
Fannie Mae & Freddie Mae
Government-Sponsored enterprises
The MBS they issue are perceived to carry an implicit government
guarantee
Issued by private financial institutions
Pooling of loans or receivables with periodic cash flows
Non traditional fixed income sectors
Liquid and transferable
diversification as it is less correlated to traditional
bonds and stocks