Hend Abuenein
Active Member
Hi David,
I’d be thankful if you helped me develop a better understanding of how securitization happens, and fill a few gaps here please:
When we want to securitize our mortgage loans in order to shrink our balance sheet, that means that either 1) the loans are not made yet, and are pending the funds expected from the sale of the securities. Or 2) we’ve already extended the loans, but want to securitize them after they’re made in order to free some liabilities/equities for other investments.
How does it happen in either case?
If we already extended the loans as in case 2,
a- Do we endorse the mortgage deeds to the trustee, or SPE who will sell the securities for us?
b- Does that take place with knowledge and agreement of the borrowers (I read a little into the foreclosures case, got an idea it started here, but didn't really understand the depth of it)?
c- If we do endorse the deeds to a third party in the promise of the sale, what happens if the securities market declines and they don’t sell (other than the risk of warehousing the loans)?
And, in case 1,
d- How do we issue the securities as MBS if the mortgages are not made yet (since the loans are not made pending the funds from the securities to be sold)?
e- Does the “shrinking of the balance sheet” happen because these assets no longer appear on our balance sheet since they are paid for by the sales of the securities (endorsed to the SPE)? Or is it an intrinsic “shrink” in the sense that it frees up liabilities/equity to invest in other projects, but still appears on our balance sheet?
I know this is outside the FRM topics, but I'd like to learn more about it.
Thanks
Hend
I’d be thankful if you helped me develop a better understanding of how securitization happens, and fill a few gaps here please:
When we want to securitize our mortgage loans in order to shrink our balance sheet, that means that either 1) the loans are not made yet, and are pending the funds expected from the sale of the securities. Or 2) we’ve already extended the loans, but want to securitize them after they’re made in order to free some liabilities/equities for other investments.
How does it happen in either case?
If we already extended the loans as in case 2,
a- Do we endorse the mortgage deeds to the trustee, or SPE who will sell the securities for us?
b- Does that take place with knowledge and agreement of the borrowers (I read a little into the foreclosures case, got an idea it started here, but didn't really understand the depth of it)?
c- If we do endorse the deeds to a third party in the promise of the sale, what happens if the securities market declines and they don’t sell (other than the risk of warehousing the loans)?
And, in case 1,
d- How do we issue the securities as MBS if the mortgages are not made yet (since the loans are not made pending the funds from the securities to be sold)?
e- Does the “shrinking of the balance sheet” happen because these assets no longer appear on our balance sheet since they are paid for by the sales of the securities (endorsed to the SPE)? Or is it an intrinsic “shrink” in the sense that it frees up liabilities/equity to invest in other projects, but still appears on our balance sheet?
I know this is outside the FRM topics, but I'd like to learn more about it.
Thanks
Hend
