Collection refers to the process of collecting payments from the borrowers on the underlying assets. This is typically done by the special purpose vehicle (SPV) that was set up to hold the assets and issue the securities.
The collection process can be complex, as it may involve dealing with borrowers who are in default. The SPV may need to send out dunning letters, negotiate repayment plans, or even take legal action to collect the payments.
The collection process is an important part of securitisation, as it ensures that the investors receive the payments that they are owed. If the SPV is unable to collect the payments, it may not be able to make the payments to the investors, which could lead to losses.
Here are some examples of collection in securitisation:
- A bank might securitise a pool of car loans. The SPV would then be responsible for collecting the payments from the borrowers on the car loans.
- A company might securitise a pool of receivables. The SPV would then be responsible for collecting the payments from the customers who owe the money.
The collection process is an important part of securitisation, and it is essential that the SPV has a strong collection team in place.