Securitization
Asset-Backed Securities glossary · Asset Specific Nuances
Definition
The process of transforming illiquid financial assets into securities by pooling them and structuring claims on the pool's cash flows.
Securitization in plain English
Securitization is the trick of turning a big pile of loans — things you normally can't easily sell, like thousands of car loans or mortgages — into tradeable bonds that investors can buy. You gather many loans into one pool, then sell investors slices that give them the right to the stream of monthly payments those borrowers make. This matters because it lets lenders get their money back right away (instead of waiting years for each loan to be repaid) so they can go make more loans, while investors get a steady income stream. It's like a lemonade stand owner who, instead of waiting all summer for daily sales, sells 'shares of this summer's revenue' to neighbors today for cash up front.
Related Asset-Backed Securities terms
Asset-Backed Securities practice questions · Asset-Backed Securities flashcards · Asset-Backed Securities study guide