Whole Loans vs Securitisation: Choosing the Better Option
Whole loans offer higher returns, but investors must be aware of the increased risks compared to traditional securitisation.
Both whole loans and securitisation stem from the need for financial institutions to find alternative funding sources, freeing up capacity on their balance sheets and opening up opportunities for investors.
The choice between whole loans and securitisation depends on the investor's risk tolerance, making it essential to understand the pros and cons of each.
Understanding Securitisation
Securitisation can be thought of as the process where an originator pools loans and raises finance backed by those loans, with the security representing a claim on the income from the loans.
The Securitisation Process
The process comprises three key steps, starting with a company identifying the assets it wants to remove from its balance sheet and pooling them into a 'reference portfolio'.
- Identification of assets to be removed from the balance sheet
- Pooling of assets into a reference portfolio
- Raising finance backed by the pooled assets
No specific quote available in the given text.
Author's summary: Whole loans and securitisation offer alternative funding sources.
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