Securitization may broadly be defined as the process whereby loans, receivables and other financial assets are pooled together, with their cash flows or economic values redirected to support payments on related securities.

 

These securities, which are generally referred to as "Asset-Backed Securities" or "ABS", are issued and sold to investors - principally, institutions - in the public and private markets by or on behalf of issuers, who utilize securitization to finance their business activities. The financial assets that support payments on ABS include residential and commercial mortgage loans, as well as a trade receivables, credit card balances, consumer loans, lease receivables, automobile loans, and also non-performing loans.

 

Although these asset types are used in some of the more prevalent forms of ABS, the basic concept of securitization may be applied to virtually any asset that has a reasonably ascertainable value, or that generates a reasonably predictable future stream of revenue.