underlying originator / asset originator??

[itsyourz]

what's the difference between them?

while i'm trying to figure out question no.34 of 07 practice exam part I

the answer is a

because the liability concentration levels of the asset originator is more significant for underlying originator,

not for investor. This is what garp says

i dont get it at all.

i chose c , by the way, the reason is i thought the quality of the loan servicer is nothing for investors

what if the loan servicer is default? any bad effect to investors?

 

[David Harper CFA FRM]

okaybody,

Originator characteristics matter but they matter less than others. In a cash securitization (think cash CDO) recall the originator transfers in "true sale" (off the balance sheet) to the SPV. As an investor, you are more interested in the assets-in-the-SPV (corporation or trust). Recall bankruptcy remote: if the originator goes bankrupt, creditors of the originator will not be able to reach your investments. Hence, your diminshed concern about originator's balance sheet.

(it is good to also see why this may be different for a synthetic CDO. In synthetic CDO, assets don't transfer so it's different and you'd have more of an argument)

Recommend think about the Ashcraft subprime case. Key friction includes: friction between servicer and third parties. From the Aschraft subprime:

"The servicer can have a significantly positive or negative effect on the losses realized from the mortgage pool. Moody’s estimates that servicer quality can affect the realized level of losses by plus or minus 10 percent. This impact of servicer quality on losses has important" ....More detail on page 13 of Aschraft

David

 

[ajsa]

Hi David,

for this question, is the asset-backed securitization issue cash securitization or synthetic securitization? Or as itsyourz suggested, is there a distinction between underlying originator / asset originator?

For this graph, it seems the "asset" originator still owns the assets on its balance sheet:
http://learn.bionicturtle.com/images/forum/0911_scdo.png

Thanks.

 

[David Harper CFA FRM]

Hi asja - it's synthetic because the risk is transferred "synthetically" via credit default swaps; instead of true sale transfer to SPE. So, you are correct, in the above (which is a simple balance sheet synthetic CDO), orinator still owns assets and no distinction btwn underlying/asset originator...in the synthetic CDO, as you have noted, asssets don't go to the SPE, they remain on originator's B/S (although please note, this is *different* than regulatory capital, they can still get regulatory relief) ... David

 

[ajsa]

Hi David,

So investor actually needs to be concerned about the B/S synthetic CDO's originator's credit cencentration, right?

BTW, for arbitrage CDO, there is not a specific originator, right?

Thanks.