Financial Terms / asset backed security

Understanding Asset-Backed Securities (ABS)

Asset-backed securities are debt instruments that provide a fixed rate of income over a set period of time, backed by an underlying pool of assets.

What is an Asset-Backed Security (ABS)?

An Asset-Backed Security (ABS) is a financial security that is collateralized by underlying assets and is sold to an issuer. The issuer then packages the loans into a portfolio.

What kind of assets are used to collateralize ABSs?

ABSs are typically collateralized by assets such as real estate, auto loans, payment streams from credit cards, and other non-traditional forms of collateral.

Who buys ABSs?

ABSs are typically bought by investors in the secondary market who are looking for a return on their investment.

Key Points

Asset-backed Securities
Asset-backed securities (ABS) are a type of security backed by a pool of non-mortgage assets, such as auto loans, credit card receivables, mortgage-backed securities, and more.
Auto Loans
Auto loans are one of the most common assets used to back ABS. These loans are typically bundled together and sold to investors as a way to provide them with a steady stream of income.
Credit Card Receivables
Credit card receivables, such as unpaid credit card debt, are also used to back ABS. This debt is typically sold to investors as a way to generate income for the issuer.
Mortgage-backed Securities
Mortgage-backed securities (MBS) are securities backed by mortgages. These securities are typically sold to investors as a way to generate income for the issuer, and can be used to back ABS.

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