- Recoveries are the amounts of money that are received by investors in a securitisation after some or all of the underlying assets have defaulted.
- Recoveries can come from a variety of sources, including:
- The sale of the underlying assets.
- The proceeds of insurance policies.
- The liquidation of the assets of the borrowers.
The amount of recoveries that an investor receives will depend on a number of factors, including:
- The type of underlying assets.
- The severity of the default.
- The timing of the default.
- The legal and regulatory environment.
Recoveries are an important consideration for investors in securitisation. Investors need to understand the potential for recoveries in order to assess the risk of their investment.
Here are some examples of how recoveries are used in securitisation:
- Mortgage-backed securities: In the event of a default on a mortgage, the mortgage lender will typically sell the property and use the proceeds to pay off the mortgage. Any remaining proceeds are then distributed to the investors in the securitisation.
- Collateralized debt obligations: In the event of a default on a loan, the lender will typically try to collect the debt from the borrower. If the borrower is unable to pay, the lender may sell the loan to a third party. Any remaining proceeds are then distributed to the investors in the securitisation.
Recoveries can help to mitigate the risk of default for investors in securitisation. However, it is important to note that recoveries are not guaranteed.