A loan is a financial instrument that represents a debt obligation. In a securitisation transaction, the underlying assets are typically loans. The loans are pooled together and then securitised, which means that they are divided into smaller securities that are sold to investors.
The loans that are used in securitisation transactions can be a variety of types, including:
- Mortgages: Mortgages are loans that are used to finance the purchase of real estate.
- Credit cards: Credit cards are loans that allow borrowers to make purchases and then repay the loan over time.
- Auto loans: Auto loans are loans that are used to finance the purchase of vehicles.
- Student loans: Student loans are loans that are used to finance the cost of education.
The loans that are used in securitisation transactions must meet certain criteria in order to be securitised. These criteria typically include:
- The loans must be of a certain size.
- The loans must have a certain credit rating.
- The loans must be from a certain geographic area.
The applications of loans in securitisation include:
- To raise capital: Securitisation can be used to raise capital for the issuer. This can be done by selling the securities to investors.
- To reduce risk: Securitisation can be used to reduce risk for the issuer. This is because the risk of the underlying loans is spread out among the investors.
- To improve liquidity: Securitisation can be used to improve liquidity for the issuer. This is because the securities can be easily bought and sold in the secondary market.
Loans can be a valuable tool for securitisation transactions. They can help to raise capital, reduce risk, and improve liquidity.