The Process Of Securitization As A Part Of Mortgage Refinancing.

The process of securitization involves several stages that reflect the activity of participants in this process from the time of issuance of a credit to maturity of securities backed by these loans.

Providing the mortgage loan.

At this stage there is the granting of credit, the deal of loan issue for a certain amount and term between the bank-lender and borrower. Such a bank is called the originator. Its primary function – is loan servicing, that is implementation of functions of service agent.

Besides the basic service agent, in the international practice there is always backup service agent who is to take up pool maintenance functions in the event of failure of the basic service agent. There is no doubt that the bank, which is a backup service agent, must have adequate financial resources and have an impeccable reputation and high credit rating.

Accumulation of credits and the formation of a pool of mortgages.

For conducting of securitization it is necessary to generate a pool of loans that must be relatively homogeneous with respect to indicators such as maturity, interest rate, credit risk and liquidity that allows the opportunity of actuarial calculations. In a pool of loans it should not be included poor quality (problem) loans that is why it is increased demands for unification and lending standards, which minimizes the potential risks and safety of securities.

At this stage it is done the so-called differentiation of loans. After that it is done the true sale. After the implementation of pooling the assets are transferred to the balance of Special Purpose Vehicle, which in turn sells them to the mortgage (payment) agent. Mortgage agent is the issuer of mortgage securities, the most important characteristic of which from an economic standpoint is the separation issue for senior and junior tranches.

Selling of assets is important, firstly, because of the impact on the balance of the lender (the output of it for balance), and secondly, because of the possibility to observe Generally Accepted Accounting Practices (GAAP) and legal requirements to comply with the capital.

Issuance and placement of securities.

In the third stage it is the most important – the placement of securities, which takes place in the interaction of the following participants: the securities issuer, underwriter, rating company, guarantees (insurance companies), law firm, and the audit organization?

The interaction of all participants at this stage is done in certain conditions with certain remuneration to each participant. As a result, it is done preparation of informational memorandum.

Typically, issues of mortgage-backed securities are divided into tranches – senior and junior. The key difference between them is in the order of execution of made commitments: the senior tranche commitments are executed in the first place (less risky), then – for the younger (more risky). After the issuance of mortgage securities they are placed in the stock market, and cash proceeded from the sale goes the lending bank.

Accumulation of funds to pay the securities and repayment.

The funds paid by the borrower on the loan are accumulated by originator for repayment of the securities and interest payments on them. Further, it is done repayment.

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