What is Securitization?

Securitization is the process of pooling an asset or group of assets — typically types of contractual debt — into a security. These can include residential and commercial mortgages, car loans, credit card debt, and other forms of debt, which are packaged, bought, securitized, and sold to prospective investors. Typically, investors are repaid by the principal and interest cash flows from the underlying debt, which are then redistributed as part of the new financing terms. Securitization often comes in the form of mortgage-backed securities (MBS) and asset-backed securities (ABS), among others.