Cash Asset Backed Security Instrument

From Open Risk Manual


Cash Asset Backed Security Instrument. An asset-backed security is a type of bond or note that is based on pools of assets, or collateralized by the cash flows from a specified pool of underlying assets. Assets are pooled to make otherwise minor and uneconomical investments worthwhile, while also reducing risk by diversifying the underlying assets.

Issues and Challenges

Definition of ABS is one with any kind of asset underlying which is not a mortgage, e.g. a loan, credit card etc. Asset Backed Securities, for example home equity loans (HEL), credit cards, etc. These are securities backed by receivables [payments] that are either secured (HEL) or unsecured (credit card), tranched on the basis of prepayment and default risks. Action: Determine where mobile home and second mortgage based securities fit in, and add to the relevant definition. Outcome: these would be specialised kinds of pools of loans and are therefore reflected by specific typs of Cash ABS, in the same way as Auto Loan ABS are defined. Note also that an issue of ABS certificates (contracts) may have different tranches which relate to these different kinds of loan, and other as yet undefined types of loan. These are capable of extension into indefinite numbers of loan types / pool types, so it would not be practical to include all the possibilities in the standard terms other than as selectable types of loan in the loan type selection data range.


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