Talk:Securitization

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)

Don't understand

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.

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)

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)

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)

Translation

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

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)

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)

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)

I would love to see more on the history and potential failures of asset securitization. Discussion surrounding the fact that there is an "agency issue" at play and that the originators hold no risk is still seen as a long-term problem that may result in the systemic failure of the capital markets.... (yes this is a loaded statement so, something toned down but along these lines to express the deep rooted public concern over such instruments). — Preceding unsigned comment added by 64.30.95.135 (talk) 01:54, 23 December 2012 (UTC)

Why not pop some initial wording in here for discussion? Wildfowl (talk) 22:54, 24 December 2012 (UTC)

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)

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)

Definition Suggestion

Feel free to incorporate this, if it would be helpful. I think it would be, for people unfamiliar with finance, who might be searching for a basic definition.

"Securitization, in its most basic form, is a method of selling assets. Rather than selling those assets "whole", the assets are combined into a pool, and then that pool is split into shares. Those shares are sold to investors who share the risk and reward of the performance of those assets. It can be viewed as being similar to a corporation selling, or "spinning off," a profitable business unit into a separate entity. They trade their ownership of that unit, and all the profit and loss that might come in the future, for cash right now.

A very basic example would be as follows. XYZ Bank loans 10 people $100,000 a piece, which they will use to buy homes. XYZ has invested in the success and/or failure of those 10 home buyers- if the buyers make their payments and pay off the loans, XYZ makes a profit. Looking at it another way, XYZ has taken the risk that some borrowers won't repay the loan. In exchange for taking that risk, the borrowers pay XYZ interest on the money they borrow.

From the perspective of XYZ, those loans are 10 different assets. They have value- one, if the loan fails, XYZ takes ownership of the house. Two, if the loan succeeds, XYZ gets their money back along with the interest they charge.

XYZ can do two things with those loans. They can hold them for 30 years and, they would hope, make a profit on their investment. Or they could sell them to some other investor, and walk away. In doing this, they would make less profit than if they held onto them long term, but they would benefit in that they make some profit while also getting their original investment back. They give up some of the reward (profit) in exchange for not having the risk.

So XYZ Bank decides they'd rather have the cash now. They could sell those 10 loans to 10 investors. Each investor would be taking a risk in buying those loans, because if any loan defaults, that one investor loses. Naturally, investors would not be willing to pay very much for those loans, knowing the risk involved. XYZ wants to sell those loans for the best price they can get, so they decide to securitize those loans. They combine the 10 loans into one entity, and then they split that one entity into 10 equal shares. Each investor still pays the same $100,000, but instead of owning one loan, they will own 10% of all 10 loans. If one loan fails, every investor loses 10%.

The result is that XYZ bank is able to sell their assets for more money, and investors are insulated from the volatility of directly owning mortgages."67.167.248.233 (talk) 13:00, 15 September 2008 (UTC)

Rutlog (talk) 17:24, 25 December 2009 (UTC)Comment on the SuggestionRutlog (talk) 17:24, 25 December 2009 (UTC)

"Securitization, in its most basic form, ... cash right now.

This suggestion is unhelpful because in almost every respect it is an inaccurate characterization. Securitization is not a method of selling assets but a variant of corporate finance that enables a company to raise debt below its company cost of capital. The pooled assets are not necessarily split into shares unless it is a "participation." (Remember, this is debt finance.) Participation is the original form of securitization but not the main form since the late 1980s when pay-through securities became legal. Securitization is utterly unlike a corporation spinning off a business unit because there is supposed to be no transfer of operational risk; that is how the company gets a lower cost of capital than the on-balance sheet cost. -AER

I agree that the article needs a complete re-write, along with a great deal more organization to the context within which securitization practices are evolving. I've done some of this for an industry trade association, and some related work, all of which is in the public domain. Take a look at http://wiki.r-cube.net/index.php?title=Securitization and tell me if you think any of it useful. Bnichols (talk) 03:17, 29 December 2009 (UTC)

While I don't necessarily disagree with what is stated above, I think this pooling of assets, and use of SPVs, is really just a special case of securitisation. What about the notion of a warrant being nothing more than a securitised call option? In this more general sense, an option (which is an instrument or contract, but not necessarily a "security") is turned into a security (ie, it is "securitised") by wrapping that call up in some contractual and underwriting committments and then _issuing_ it as a security, rather than simply "writing" it as an option. Should the definition therefore not be more along the lines of "turning something into a security" and and explanation of what, therefore, a security is and how it might differ from another instrument type (like an option or a future) which is not a security. --Bradqwood (talk) 10:54, 16 January 2010 (UTC)

Leverage vs. Liquidity

Given recent events in the financial services industry, it is tempting to assign specific types of securitization to the broader definition; however, it seems more prudent to take the word literally; as in, the process of creating a security (a fungible, negotiable instrument representing financial value). The effect of securitization is greater liquidity, which tends decrease risk by permitting greater portfolio diversification. The quantity or nature of the underlying asset(s) should have no bearing on whether securitization has taken place.

Some of the confusion may lie in the fact that the parent category is structured finance. Securitization creates added liquidity for issuers through creating a standardized unit of exchange. It does not increase leverage in and of itself. On the contrary, structured finance tends to increase leverage, focusing heavily on the use of credit enhancements created for OTC transactions that meet the unique needs of the client. (PLEASE NOTE: These two articles are very misleading and should probably have a banner to that effect, I'd add them, but not sure if I have the authority to.)

In more recent decades, debt holders have also used securitization to increase the liquidity of their positions; this tends to cause confusion, but both equity and debt are acceptable underlying asset type. This abstraction, what we call structured finance, simply multiplies and frequently obscures the underlying risks; especially when insurance and guarantees are added into the mix.

In short, structured finance adds leverage, securitization adds liquidity, and the two are not exclusive.

--JFN (talk) 02:08, 1 August 2010 (UTC)

NO

Pezzuto referemces (COI?)

I removed recent additions of links to works of Dr. Pezzuto by User:I.Pezutto because there appears to be a conflict of interest. Do those of us who do not have a COI with this content see a need for this material? Jojalozzo 05:38, 29 November 2011 (UTC)

CADCMSJJJJJJJJJJJJJJJJJJJJNDSMCMKDSMCSC,SCL,SD,CSD,NNJCNKNID IS 404 ERROR — Preceding unsigned comment added by 122.161.220.143 (talk) 07:46, 1 April 2017 (UTC)

One who securitizes?

From what I understand, private-label MBSs use a SPV to issue the security. But I don't think GSEs, such as Freddie Mac and Fannie Mae do so; I believe they just issue securities (mortgage-backed securities for Fannie Mae, participation certificates for Freddie Mac, etc.) themselves. So, while for private-label securities one can say "the SPV issues securities" or "the assignee issues securities" (referring to the assignment of the mortgage notes to the SPV), but for GSEs one can say "the GSE issues securities" but not any of the aforementioned phrases since is is neither a SPV nor were the underlying notes assigned (they are, as far as I can tell, bought outright, and assignment is not congruent with ownership). A similar problem is encountered if the one who securitizes is neither a SPV, an assignee, or a GSE.

So is there an equivalent phrase that would accurately describe all of the possible situations? And what is the subject of the phrase? Int21h (talk) 22:24, 25 April 2012 (UTC)

Dr. Carbo Valverde's comment on this article

Dr. Carbo Valverde has reviewed this Wikipedia page, and provided us with the following comments to improve its quality:

This concept is particularly difficult and complex. The definitions and insights provided in this entry deal very well with such a challenging term. I would probably make further distinctions between the European case and the U.S. case. In particular, to the fact that covered bonds (widely used in Germany, Spain or the UK, for example) can be considered an alternative (and probably safer) instrument to standard mortgage securitization via MBS.

We hope Wikipedians on this talk page can take advantage of these comments and improve the quality of the article accordingly.

We believe Dr. Carbo Valverde has expertise on the topic of this article, since he has published relevant scholarly research:

• Reference : Carbo Valverde, Santiago & Degryse, Hans & Rodriguez-Fernandez, Francisco, 2012. "Lending relationships and credit rationing: the impact of securitization," CEPR Discussion Papers 9138, C.E.P.R. Discussion Papers.

ExpertIdeasBot (talk) 15:25, 11 July 2016 (UTC)

Deletion of citations to widely cited academic article by MrOllie based on Off-wiki personal attack; see wikipedia's page on reliable sources re: Mortgage Securitization

I wrote the following on MrOllie's talk page following his deletion of citations to a particular academic author. Mr. Ollie did not respond on substance but rather responded with ad hominem attacks. Please discuss so that we can reach consensus.

Dear MrOllie,

You recently reverted edits to articles about mortgage securitization, the GSEs, and the subprime mortgage crisis. I believe these revisions reduced the substantive quality of the wikipedia articles and the edits should be restored. My explanation is below. I look forward to working with you amicably to reach consensus. I believe that our goal should be to improve the article and cite to high quality, relevant sources whenever possible.

The edits you reverted included substantive improvements to the articles and cited an award-winning (see also here), widely-cited, widely-read academic journal article by a tenured professor at a leading research university with relevant expertise.

According to Wikipedia's policy on reliable sources:

″Many Wikipedia articles rely on scholarly material. When available, academic and peer-reviewed publications, scholarly monographs, and textbooks are usually the most reliable sources. . . . Material such as an article, book, monograph, or research paper that has been vetted by the scholarly community is regarded as reliable, where the material has been published in reputable peer-reviewed sources or by well-regarded academic presses. . . . One can confirm that discussion of the source has entered mainstream academic discourse by checking the scholarly citations it has received in citation indexes.″

Thus, the source cited is among the most reliable sources under Wikipedia's definition of reliable sources. You reverted it while suggesting that it might be reference-spamming, but given the relevance of the academic article to the wikipedia article, and the high quality of the academic article--demonstrated by its placement, its citations, its readership, its awards and the institutional affiliation and status of its author--it is not a form of spam but rather a legitimate effort to improve the article.

Please note that news articles in journals with an ideological valence, think tank reports and other materials are considered less reliable sources than academic research. See Biased or Opinionated Sources Many of the other sources in the article are editorials and think tank reports, not academic articles, and the inclusion of more high quality and up-to-date academic articles would therefore improve the article.

Many of the think tank reports cited in the article are written by organizations that receive financial sponsorship from private lenders and therefore have an interest in portraying the financial crisis as having been caused by government policies rather than by private financial institutions. One of the few academic reports cited is years out of date, claims to provide a "comprehensive" bibliography of articles, but was published in 2012. Much has been written in the ensuing 7 years--the article is no longer a comprehensive review, if it ever was. And indeed, the author claiming otherwise has a think-tank affiliation.

In addition, self-published material is generally considered an unreliable source, except when published by well-published academic experts. Per Wikipedia policy, self-published material:

″are largely not acceptable as sources. Self-published expert sources may be considered reliable when produced by an established expert on the subject matter, whose work in the relevant field has previously been published by reliable third-party publications.″"

You cited to self-published blog by a self-employed blogger / part time document reviewer which contains an off-wikipedia criticism of a scholar with whom he disagrees about the benefits of legal education.

It may be helpful to understand the context of this post. The blogger apparently posted this criticism as a form of revenge for having been made to appear foolish for making substantive mistakes about legal education and student loans --subjects about which the blogger purports to be an expert--even in a publication to which he has contributed.

Citing to the post you cited violates wikipedia policies including Wikipedia:No_personal_attacks and [[2]]. Indeed, the author of the post you cited acknowledged "that this post might be construed as an “off-wiki attack” ... that Wikipedians may perceive as harmful to their community."

Edits are supposed to be evaluated on substance based on established wikipedia policies about reliable sources, not based on snap decisions based on [[3]]

I recognize that my edits only added one source and that it would be better to include multiple sources. If you would like to add additional high quality academic sources rather than deleting the few high quality citations that are in the wikipedia article, I would encourage you to do so. I have reviewed Wikipedia's Conflict of Interest policies and I am in compliance.

Mbs6446 (talk) 17:00, 31 March 2019 (UTC)

References