In turn, the trust issues new secutities to the public, such as bonds, using the mortgage loans as colateral for the issued securities. Proceeds from the bonds sale will be used to pay for the mortgages bought from the bank. MBB may also be coupn-paying bonds. SPV provides greater security to the investors of the newly-created bonds. Credit enchancement can also be obtained by the trust from a third party insurer for a fee.
Alles further explaine the three types of securitisation contract .
Pass through securities is where ownership of the portfolio of assets is transferred from the finance instituionto to a trust created for his purpose. The new securities are secured by the assets of the subsidiary. There are two types of assets that can be securitised in this way, Alles added. Alles also mentioned the advantaged of securitisation to the finance instituions, investor and the country. To investors , this increase the variety of invesment vehicles that are available.