Asset Backed Securitization

Presenters
Ayesha Majid
Muhammad Ameen Abdullah
Muhammad Bilal Sarwar
Sana Shauqat
Agenda
Asset Backed
Security
An Asset-backed security is a financial security
whose value and income payments are derived from
and collateralized by a specific pool of underlying
assets.
Financial Security
A fungible, negotiable instrument representing financial
value and includes;
Underlying Royalties
Assets
Loan
Cr e a- -.,;:----
Cl!Jrct
ctebt
ei
b
•
Structure of Asset-Backed Securities

High Credit rating Low rating Lowest or

compared no Rating
Normally AAA to Class A
Rating Usually
retained By
Low yield due to High Yield due issuer or
higher rating to Lower rating Sponsor
Highest return
Principal payment structures of ABS
Types of ABS according to principal payment method
I Key Features of an Ideal Asset-Backed Instrument

Capable of being offered to public

or private placement

l
tra nsferabiIity
Permit free or restricted
Permit issuance of pass through
or pay through Securities
Should not constitute debt of SPV
or Originator
- Capable
- - of- being classified as
Senior or Subordinate
ASSET_BACKED
SECURITIZATION
PARTIES AND PROCESS
Parties in Securitization
I Originator
I

Creates a pool of future

receivables

Writes off those assets from balance

sheet

Sells those assets to SPV

Receives funds
as
Special Purpose
Vehicle
A special purpose vehicle is a legal entity created to
fulfill
a narrow or specific or temporary objects.
Characteristics of Special Purpose Vehicle (SPV)
Uses of SPV
Key features in a desired
SPV
Underwriter
Credit enhancers

• Over
collateralization
• Subordination
Dealer
Benefits of Securitization
 Sale of securitized
receivables

Credit enhancement Providing services

Fixed rate Notional Principle of

Coupon Bonds
Payments
 The US secondary mortgages market
• The US secondary mortgages market is
considered to be the world’s most
developed mortgage securitisation market.
• The mortgage originators are commercial
banks, thrifts, mortgage banks, and mortgage
brokers.
• The main secondary market conduits are
Fannie Mae, Ginnie Mae and Freddie Mae.
• Some private investment banks also act as
conduits in the secondary mortgages market,
but to a limited extent.
• The investors in the secondary mortgages
market are the pension funds, the life insurance
companies, the commercial banks, the thrifts,
and Fannie Mae.
 INSTITUTION FRAMEWORK FOR THE
SECONDARY MORTGAGES MARKET IN
THE US

• The housing and mortgages industry in US is

overseen by U.S. Department of Housing
and Urban Development (HUD).
• It also sets goals for government owned
Ginnie Mae, and Government Sponsored
Enterprises (GSE) like Fannie Mae and
Freddie Mac.
• The Secretary of HUD is the mission
regulator for Fannie Mae and Freddie Mac
with oversight authority to ensure that both
GSEs comply with the public purposes set
forth in their charters.
• The secretary is charged with the general
regulatory authority over GSEs in all
areas other than the GSEs financial safety
soundness.
and
• The financial safety and soundness of GSEs is
regulated by an independent office of HUD,
the Office of Federal Housing Enterprise
Oversight (OFHEO).
• It regulates both the GSEs for safety and
soundness, by ensuring that they are
adequately capitalized and operating
their
businesses in a financially sound
manner.
Short title and commencement
Definitions

Commission

Commission means securities and exchange

commission

Future receivable

Includes all such receivables against which

income may accrue at a future date
Investor

Investor is a person holding any asset

backed securities issued by special purpose
vehicle

Offering document

Means document containing information on

a
security calculated to invite offers
Ordinance

Ordinance means Companies Ordinance 1984

Originator

A person transferring Future receivables

to a Special Purpose Vehicle
Securitization

A process whereby a SPV issues TFCs or other

instruments to make payment to originator
and own the title of future receivables

Special Purpose Vehicle

Means a SPV registered by the commission

for
the purpose of Securitization
Eligibility for Registration
Eligibility for Registration
No director, officer or employee of such person has
been
Eligibility for Registration
Promoters, Directors and Trustees, in opinion of Commissioner
are;
Registration
Cancellation of registration
1

SPV h a s contravened, failed or

neglected to comply with any of these
rules

SPV fails to m a k e public offering in

timeframe specified by the
Commissioner

Commissioner can cancel the

registration

o n his o w n

o n application of persons holding not less

than 10°/o securities of SP V
Conditions of Operation
No SPV shall ;
I Obligations of SPV
I Manage its assets in interest
.
r =
-== - :- :re
andatt ed
noparties
t for its
Be responsible f r acts and omissions of persons
t_o _j
whom It has delegated authority

= _ :o:r
directo rso f mvel stars in good faith
Maintain proper books of accounts and records
at its
Registered Office

Transmit its audited annual reports to Investors

within 3
months of end of accounting period

Transmit semiannual reports to Investors

and commissioner within 2
months
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