Home equity loan
Collateralized Securities Home equity loans (HELs) are currently the largest asset class in the ABS market. Investors typically refer to a HEL as any non-agency loan that doesn’t meet one of the following criteria: Big Mac or alt-A loan categories. Early HELs were mostly second lien subprime mortgages, first-lien loans now make up the majority of issuance. Subprime mortgage borrowers have less-than-stellar credit histories and therefore pay higher rates than typical agency borrowers can afford. In addition to first lien and second lien loans, other senior loans may include high-value loans. Loans to Value (LTV) loans, refinancing, temporary and microloans, or open home equity lines of credit (HELOC), which homeowners use as a way to consolidate their debt.
Car loan
The second-largest sub-sector in the ABS market is auto loans. Auto finance companies issue securities backed by an underlying pool of auto-related loans. Automatic ABS is divided into three categories: primary, non-primary, and secondary:
- Premium auto ABS is organized by loans to borrowers with good credit histories.
- Non-prime auto ABS includes loans to customers with lower credit quality who may have higher accumulated losses.
- Subprime lenders often have lower incomes, tainted credit records, or both.
An owner trust is the most commonly used structure when issuing auto loans, allowing investors to receive interest and principal in sequence. Transactions can also be paid on a pro-rata basis or a combination of the two.
credit card receivables
Securities-backed credit cards have been the benchmark in the ABS market since accounts receivable were first introduced in 1987. The credit card holder can recycle the borrowed funds until the specified credit limit is reached. The borrower then makes the principal and interest payments as needed, as well as the required minimum monthly repayments. Since there is no plan to repay the principal, credit card debt has no actual maturity date and is therefore considered a non-amortizing loan.
The trusts resulting from the issuance of ABS backed by credit card receivables have evolved from discrete trusts to various types of master trusts, the most common of which are delinked master trusts. Discrete trusts consist of fixed or static pools of receivables that are transferred into senior/subordinated bonds. The advantage of a master trust is that as the number of receivables increases, multiple transactions can also be offered in the same trust, each of which should have a pro-rata share of all receivables. The decoupled structure allows the issuer to separate the senior and junior series in the trust and issue them at different points in time. The latter two structures allow investors to benefit from a larger pool of loans available over time, rather than a static pool.
Student Loans
ABS Collateral Student Loans (“SLABS”) is one of four core asset classes (along with home equity loans, auto loans, and credit card receivables) financed through asset-backed securitizations, and are the benchmark for most floating rate indices sub-industry. Federal Family Educational Loan Program (FFELP) loans are the most common form of student loan and are subject to interest rates between 95% and 98% by the U.S. Department of Education (“USDE”) (if student loans are designated by USDE as ” Outstanding Performer” service provider, the reimbursement rate is up to 100%). As a result, historical performance (except for high cohort default rates in the late 1980s) has been very good, and investor returns have been very good. The College Cost Reduction and Access Act, which came into effect on October 1, 2007, dramatically changed the economics of FFELP loans. Special allowance payments for lenders have been reduced, prominent executor appointments have been rescinded, lender insurance rates have been lowered, and the origination fee paid by lenders has been doubled.
The second and faster-growing segment of the student loan market is non-FFELP or private student loans. Although the Student Loan Act mentioned above has raised borrowing limits for some FFELP loans, the basic static borrowing limits and tuition increases for FFELP loans are prompting students to seek alternative lenders. Students take advantage of private loans to bridge the gap between the amount they can borrow through federal programs and their remaining educational expenses. The U.S. Congress created the Student Loan Marketing Association (Sallie Mae), a government-sponsored business that buys student loans on the secondary market and securitizes student loan pools. Sallie Mae is now the main issuer of SLABS since its initial release in 1995, and its release is considered a benchmark release. Although to several. This may be unfair or inflationary and appears to be legal.
Stranded Cost Utilities
The Cut-Rate Bond (RRB) was created as a result of the Energy Policy Act of 1992, which was designed to increase competition in the U.S. electricity market. To avoid any disruption on the way from a non-competitive market to a competitive market, regulators allow utilities to recoup certain “transition costs” over some time. These charges are considered non-negligible and are added to all customer bills. Offsets have historically been low because consumers typically pay their utility bills first. RRB’s products are generally large enough to create reasonable liquidity in the aftermarket, and the average lifespan extension is limited by an “adjusted” mechanism.
other
There are many other cash-flow generating assets including man-made home loans, equipment leases, and loans, aircraft leases, accounts receivable, dealer floor plan loans, portfolios of securities, and royalties. Intangible assets are another emerging asset class.
Trading asset-backed securities
“In the United States, the process of issuing asset-backed securities on the primary market is similar to the process of issuing other securities, such as corporate bonds, and is subject to securities market regulation. The Securities Act of 1933 and the Securities Exchange Act of 1934, as amended. Public Offerings The asset-backed securities must meet standard SEC registration and disclosure requirements and must file periodic financial statements.”
“The transaction process for asset-backed securities on the secondary market is similar to that of corporate bonds, and to some extent, mortgage-backed securities. Most transactions are conducted in the over-the-counter market, and telephone quotes do not appear to be public. A measure of the trading volume available or the number of dealers trading these securities.”
“A survey by the Bond Market Association showed that by the end of 2004, there were 74 electronic trading platforms for fixed income securities and derivatives in the United States and Europe, 5 platforms in the United States for asset-backed securities, and 5 in Europe 8 platforms.”
“Discussions with market participants suggest that many asset-backed securities are illiquid and their prices are not transparent compared to Treasury bills and mortgage-backed securities. Part of the reason is that asset-backed securities are not as standardized as Treasury bills, or even mortgage-backed securities. , investors must also evaluate asset-backed securities for different structures, maturities, credit enhancements, and other features before trading.”
The “price” of an asset-backed security is often quoted as the spread to the corresponding swap rate. For example, a benchmark issuer’s two-year maturity credit card-backed, AAA-rated security might be quoted at 5 basis points (or less) of the two-year swap rate. “
“It is true that market participants sometimes perceive the default risk of the highest-rated credit card and auto securities to be close to that of the highest-rated mortgage-backed securities, which are reportedly viewed as securities that can substitute for risk-free treasury bonds.”
