The issuers use securitization to finance their
business activities. The financial assets that support payments on asset-
backed securities include residential and commercial mortgage loans, as well as
a wide variety of non-mortgage assets.
Securitized assets may be applied to any asset that
has a reasonably ascertainable value, or that generates a reasonably
predictable future stream of revenue.
Securitization leads to structured finance, as the
resulting security is not a generic risk in entity that securitizes its assets,
but in specific assets or cash flows of such entity. The idea of securitization
is to create a capital market product that is, it results into creation of a
security which is a marketable product.
Therefore, there is large scope for development in
this area. Capital markets are today a place where we can trade, claims over
entities, claims over assets, risks, and rewards. Let us consider certain types
of securitization.