A Typical Securitization Includes The Following Elements:
Issuer – A bankruptcy-remote special purpose entity (SPE) formed to facilitate a securitization and to issue securities to investors.
Lender – An entity that underwrites and funds loans that are eventually sold to the SPE for inclusion in the securitization. Lenders are compensated by cash for the purchase of the loan and by fees. In some cases, the lender might contract with mortgage brokers. Lenders can be banks or non-banks.
Mortgage Broker – Acts as a facilitator between a borrower and the lender. The mortgage broker receives fee income upon the loan’s closing.
Servicer – The entity responsible for collecting loan payments from borrowers and for remitting these payments to the issuer for distribution to the investors. The servicer is typically compensated with fees based on the volume of loans serviced. The servicer is generally obligated to maximize the payments from the borrowers to the issuer, and is responsible for handling delinquent loans and foreclosures.
Investors – The purchasers of the various securities issued by a securitization. Investors provide funding for the loans and assume varying degrees of credit risk, based on the terms of the securities they purchase.
Rating Agency – Assigns initial ratings to the various securities issued by the issuer and update these ratings based on subsequent performance and perceived risk. Rating agency criteria influence the initial structure of the securities.
Trustee – A third party appointed to represent the investors’ interests in a securitization. The trustee ensures that the securitization operates as set forth in the securitization documents, which may include determinations about the servicer’s compliance with established servicing criteria.
Underwriter – Administers the issuance of the securities to investors.
Credit Enhancement Provider – Securitization transactions may include credit enhancement (designed to decrease the credit risk of the structure) provided by an independent third party in the form of letters of credit or guarantees.