Thursday, May 7, 2009

issues in the securitization process(1)

where securitization was not contemplated by the bank when the assets were being originated, as is often the case, the process can be along and painful business. It can often take six months to year to complete. The sort of issues that arise include:
* asset homogeneity - the underlying assets have to be similar in character and often documentation between the bank and its customers has changed or been incorrectly completed, altering the nature of the obligations to pay and what happens if payments does not take place. Unacceptable assets have to be identified and weeded out of the portfolio.
* information needs - the rating agencies will require large amounts of information to conduct their detailed analysis. This will include historical information on assets performance trends that might not be readily available.
* credit enhancement - improving the quality of the securities\the ability of the SPV to meet its obligations may be necessary to achieve an appropriate rating. This can be done in a number of ways:

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