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Securitization

[see-kyoo-ri-tuh-ZAY-shuhn]

What is the definition of Securitization?
The process of pooling various types of contractual debt such as residential mortgages, commercial loans, or other receivables, and selling their related cash flows to third party investors as securities, which may be described as bonds, pass-through securities, or collateralized debt obligations.
Using Securitization in an Example

A financial institution might collect thousands of individual residential mortgage loans, group them together into a financial pool, and issue bonds or securities backed by the pool to investors in the capital markets. These securities are then traded, providing liquidity to the original lenders and offering investors the opportunity to invest in a diverse pool of assets.

Using Securitization in a sentence

During the meeting, the finance manager explained how the company could improve its cash flow through securitization of its outstanding receivables.

Related Terms

Surviving Spouse

A person whose spouse has died within the tax year and who may file a joint tax return for that year. Additionally, the surviving spouse can file joint returns for the next two years if they remain unmarried and maintain a household as the principal residence for a dependent child.
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Swap

A financial contract in which two parties agree to exchange streams of payments over a specified period, based on different indices such as interest rates, foreign exchange rates, or equity indices, applied to a notional amount. Swaps typically do not involve the exchange of principal.
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