![]() ![]() However, the asset class remains complicated. In the aftermath of the crisis, the structured credit market underwent a painful yet necessary transformation as market participants returned to sustainable underwriting practices. ABS investors’ principal job is to analyze the cash flows from these obligations to assess value and the possibility of loss, rather than relying solely on the current market prices of hard assets, the reputation of a sponsor, or the presence of an investment-grade rating.ĭuring the 2008 global financial crisis (GFC), many investors experienced losses related to certain private label residential mortgage-backed securities (RMBS), commercial mortgage-backed securities (CMBS), and MBS-backed collateralized debt obligations (CDOs). Despite these and other strengths discussed in this report, some ABS and other forms of structured credit continue to offer higher yields than similarly rated corporate or municipal bonds. ABS also have many other investor-friendly features that may help protect against loss and improve liquidity, such as tranching of risk, overcollateralization, and diversity of payers in each underlying pool. ![]() These contractual obligations to pay often rank senior to a borrower’s traditional debt obligations, reducing ABS investors’ exposure to the borrower’s financial health. In one way or another, these asset types represent contractual obligations to pay. Summary Asset-backed securities (ABS) finance pools of familiar asset types, such as auto loans, aircraft leases, credit card receivables, mortgages, and business loans. ![]()
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