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Transforms illiquid assets into cash through asset-backed securities.
Securities created from cash flows of pooled loans or receivables.
Increases lending capacity by converting loans into cash.
Isolates assets from bankruptcy risk, enhancing investor confidence.
Offers different risk-return profiles to cater to investor preferences.
Lowers costs by providing alternative funding sources.
Risk of cash flows differing from scheduled payments due to early repayments.
Agency RMBS are backed by government guarantees, while non-agency are not.
A security that redistributes prepayment risk among different bond classes.
Debt-service-coverage (DSC) ratio and loan-to-value (LTV) ratio.
A security backed by a diversified pool of debt obligations.
Covered bonds have dual recourse and stricter eligibility criteria.
Improves credit ratings and investor appeal through risk mitigation.
Homeowners may refinance, shortening the security's maturity.
Measures prepayment rates against a standard for market participants.