The main advantages of debt-backed securities are: The main advantages of debt-backed securities Then the investor gets a stable and fix return over the lifetime of these securities. A bunch of securities is packed into one marketable financial security. Mortgage-backed securities are one of the examples of debt securitization. It is due to the fact that a person cannot get rid of the student loans even in Bankruptcy. See also How Are Exotic Options Traded? (Explained) The student loan securities provide a better return than the MBS, but they are not risky at all. So, these loans provide a huge market for securitization. There are trillions of dollars of student loans in the U.S.A alone. Student loans backed securities have the second-longest maturity time after mortgage-backed securities. In this short amount of time, they also provide whopping double-digit returns.īut, the greater returns also come with greater risk, as the underlying receivables can fail as people do not pay their credit card debts. It can take, normally, anywhere from a few months to a year for the credit card receivable securities to mature. These are the shortest securities in terms of maturity. This is because of the phenomenal returns that these securities give and the relatively short amount of time in which it gives these returns. Credit Card DebtĬredit card debt is one of the most popular types of debt which can be packaged into securitized. As the financial products which are mortgages are used to issue Mortgage-backed securities. These are also products that have a timeline of decades. The MBS is a great financial product, as the cash flow is highly predictable and so are the earnings. There were a lot of other reasons what caused the global financial crisis of 2007-2008. The MBS got a bad reputation due to the part these securities played in the global financial crisis of 2007-2008. These are by far the most widely used debt which is securitized. Mortgage-backed securities are called MBS. See also What are Mortgage Revenue Bonds? Everything You Need to Know Mortgages
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