What are the types of asset securitization

The classification of asset securitization are:

(a) broad asset securitization refers to an asset or asset portfolio to take the value of the asset assets of the securities asset form of asset operation, which includes the following four categories:

1, physical asset securitization: that is, the conversion of physical assets to securities assets, is based on physical and intangible assets to issue securities and listing process.

2, credit asset securitization: refers to the lack of liquidity but there are future cash flow of credit assets (such as bank loans, corporate accounts receivable, etc.) through the restructuring of the formation of asset pools, and as a basis for the issuance of securities.

3, securities asset securitization: that is, the process of re-securitization of securities assets, that is, the securities or portfolio of securities as the underlying assets, and then issue securities based on the cash flows generated by them or cash flow-related variables.

4. Cash asset securitization:It is the process by which holders of cash convert it into securities through investment.

(ii) Asset securitization in the narrow sense refers to securitization of credit assets. According to the type of assets being securitized, credit asset securitization can be divided into home mortgage-backed securitization and asset-backed securitization.

Extended information:

I. Asset securitization refers to the process of issuing asset-backed securities (ABS) on the basis of a structured design for credit enhancement backed by the future cash flows generated by the underlying assets for repayment.

It is a form of financing that issues tradable securities backed by a specific portfolio of assets or specific cash flows. Asset securitization refers only to asset securitization in a narrow sense. Since 1970, the government national mortgage association in the United States for the first time to issue the mortgage portfolio as the underlying assets of the mortgage-backed securities - mortgage transfer securities, to complete the first asset securitization transactions, asset securitization has gradually become a widely adopted financial innovation tools and has been the rapid development of the basis, and derived such as the risk of securitization products.

The development of asset securitization relies on three cornerstones, insolvency segregation, risk restructuring and credit enhancement. The establishment of insolvency segregation makes the risk of future issuance of asset securitization products disconnected from the original equity holders, which can protect the interests of investors, but also makes the interests of the original equity holders to be safeguarded.

Risk reorganization allows investors to achieve a reasonable match in terms of investment risk and return. Risk averse investors can buy high grade credit bonds with multiple principal and interest protection measures at the cost of low returns, while risk-averse investors can buy bonds with high returns at the cost of low or even no grade credit rating, i.e. high risk.

Credit enhancement allows a financing entity with weaker credit to raise funds at a lower cost through the treatment of future cash flows from the underlying assets for repayment. This is particularly relevant for companies with weak credit ratings.

Third, one of the basic principles of asset securitization is the law of large numbers, only when there is a large number of dispersed underlying assets in the asset pool of asset securitization, in order to prevent the formation of individual asset defaults on the assets of the cash flow of the huge impact, but also in order to crack the excessive reliance on the credit of the main body of financing, to achieve the effect of risk restructuring and credit enhancement.