What is Securitization? Securitization is defined by some as the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations and selling said consolidated debt as bonds, pass-through securities, or Collateralized mortgage obligation (CMOs), to various investors. The principal and interest on the debt, underlying the security, is paid back to the various investors regularly. Securities backed by mortgage receivables are called mortgage-backed securities (MBS), while those backed by other types of receivables are asset-backed securities (ABS). The basic classical transaction is as follows: an owner of receivables (the originator or seller) sells receivables to a third party (the purchaser or special purpose company or SPV). The purchaser borrows money to finance the purchase price and repays the borrowing out of the proceeds of the receivables bought by it. Hence the traditional securitization is essentially a sophisticated form of factoring or discounting of debts.

The term securitization is used because in substance non marketable assets-the receivables- are converted into marketable assets represented by securities-the notes: the lenders can sell their notes secured on the receivables. The main purpose of securitization is to move the risk of their assets from their balance sheet to other financial institutions such as banks, Insurance companies, and hedge funds.

Securitization started by home mortgage loans and commercial property loans. In fact, any kind of Asset can be securitized such as consumer receivables, trade receivables, oil and gas properties, equipment leases, sovereign debt, delinquent tax receivables, bond portfolios and government revenues.