Posted in Finance, Accounting and Economics Terms, Total Reads: 1296
Securitization acts as a financial instrument to pass on the debt to interested investors where residential mortgages, commercial mortgages, auto loans and credit card debt obligations can be modified as collateralized mortgage obligation in the form of bonds which are passed as securities.
The securities backed with mortgages are called mortgage backed securities and others are called asset backed securities. There is high risk involved as standards of underwriting could be compromised on issuing the securities to a particular firm in the current competitive securities market even for low credit worthy firms. This was also one of the reasons for U.S. sub-prime crisis.