Lending policy refers to the set of rules and guidelines that a lender uses to determine whether or not to approve a loan application. Lending policies are designed to protect the lender from lending to borrowers who are not creditworthy.
Lending policies can be used in securitisation transactions in a number of ways, including:
- To ensure that the underlying assets are of high quality: Lending policies can be used to ensure that the underlying assets are of high quality. This is important because the value of the securitisation will depend on the quality of the underlying assets.
- To reduce the risk of the securitisation: Lending policies can be used to reduce the risk of the securitisation. This is because lending policies will help to ensure that the underlying assets are only securitised to borrowers who are creditworthy.
- To increase the liquidity of the securitisation: Lending policies can be used to increase the liquidity of the securitisation. This is because lending policies will help to ensure that the underlying assets are only securitised to borrowers who are likely to repay their loans.
Here are some of the applications of lending policies in securitisation:
- To securitise residential mortgages: Lending policies can be used to securitise residential mortgages. This is because lending policies can be used to ensure that the borrowers have a good credit history and that the properties are of high value.
- To securitise commercial loans: Lending policies can be used to securitise commercial loans. This is because lending policies can be used to ensure that the borrowers have a good credit history and that the businesses are profitable.
- To securitise loans to small businesses: Lending policies can be used to securitise loans to small businesses. This is because lending policies can be used to ensure that the businesses have a good business plan and that the owners have a good credit history.
Lending policies can be a valuable tool for securitisation transactions. They can help to ensure that the underlying assets are of high quality, reduce the risk of the securitisation, and increase the liquidity of the securitisation.