Securitization and Special-purpose entity

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Difference between Securitization and Special-purpose entity

Securitization vs. Special-purpose entity

Securitization is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations (or other non-debt assets which generate receivables) and selling their related cash flows to third party investors as securities, which may be described as bonds, pass-through securities, or collateralized debt obligations (CDOs). A special-purpose entity (SPE; or, in Europe and India, special-purpose vehicle/SPV, or, in some cases in each EU jurisdiction – FVC, financial vehicle corporation) is a legal entity (usually a limited company of some type or, sometimes, a limited partnership) created to fulfill narrow, specific or temporary objectives.

Asset-backed security

An asset-backed security (ABS) is a security whose income payments and hence value are derived from and collateralized (or "backed") by a specified pool of underlying assets.

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Mortgage loan

A mortgage loan, or simply mortgage, is used either by purchasers of real property to raise funds to buy real estate, or alternatively by existing property owners to raise funds for any purpose, while putting a lien on the property being mortgaged.

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Mortgage-backed security

A mortgage-backed security (MBS) is a type of asset-backed security that is secured by a mortgage or collection of mortgages.

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Off-balance-sheet

Off-balance sheet (OBS), or Incognito Leverage, usually means an asset or debt or financing activity not on the company's balance sheet.

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Orphan structure

Orphan structure, or Orphan SPV (or orphaning) are terms used in structured finance closely associated with SPVs ("Special Purpose Vehicles") for global securitisation transactions where the equity of the SPV is deliberately handed over to an unconnected 3rd party (i.e. it becomes an "orphan").

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Securitization

Securitization is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations (or other non-debt assets which generate receivables) and selling their related cash flows to third party investors as securities, which may be described as bonds, pass-through securities, or collateralized debt obligations (CDOs).

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