The securitization process
Securitization involves the sale of loans to investors. These may be individuals or institutional investors such as pension funds, life insurance companies or other banks.
As a potential investor, your uncle is very worried about the quality of the loan sold by e-Bank. So, to reassure him about the quality of his investment, you explain to him that two additional parties are involved in securitization: a credit risk insurer and a rating agency. The general mechanism of securitization is given in Figure 10.1.
Figure 10.1. How securitization works
The sale of loans to investors is made through a special corporate entity ...
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