uick capitol and receiving cash flows, but they also carry disadvantages such as risk for both the seller and investor. Asset Securitization is a tool that maximizes capitol and minimizes risk due to diversification.

Asset securitization over other method

Risks Management and Asset securitization;

In principal any asset representing a claim to future cash flows can be securitized including non-performing. Asset securitized pools are typically "Mortgage-Backed Securities" containing assets of residential mortgages. Another type is combined "Asset-Backed Securities" containing assets such as credit card receivables, auto loans, or consumer installment loans. Pools containing a large number of securities tend to make the rate at which the principal is repaid more stable. "Asset-Backed Securities" shows little sensitivity to interest rate changes, as compared to "Mortgage-Backed Securities" which are highly sensitive. Mortgage loan backed deals frequently will require a range of $50 to $60 million in order to achieve adequate diversification. The quality of assets which will assemble the pool will determine the amount of credit enhancement. The issuer will need to have adequate financial capacity to support the representations and warranties that are necessary for securitization, so poorly capitalized companies generally are not good candidates for securitization. Small private placements can be executed for as little as $200,000 in out-of-pocket expenses. Larger or more complex deals can exceed 1 million dollars.

Asset securitization is a great innovation in that it allows financial firms to package different kinds of cash flows and risks in which they sell off to investors interested in holding them, rather than have the financial institution keep them on their balance sheet. It allows financial firms to specialize in the deal creation rather than asset-liability management. Firms still have an interest in putting together good deals (financing good assets) as these will sell at better prices, but they can now specialize in certain areas with out having to worry about them selves accumulating to much of associated risk. Though, Asset securitization is costly, as stated before, more and more investment institutions are using this strategy their business today.

a part of the modern financial life.

Benefits of the investor of asset securitization;

By securitizing their assets (be it credit cards or mortgages or car loans) then can focus on a particular area and become very knowledgeable and efficient in assembling asset packages in those specific areas without having to worry about diversification because they pass these assets along to sets of other investors interested in diversifying their own portfolios. Thus it allows financial institutions to focus on being middle men rather than risk takers. It is all just another example of how in certain cases capital markets can be superior to old fashion financial intermediation.

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