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Credit Enhancement
The process of reducing overall credit risk Require additional collateral, insurance, or other third party agreements Provide lender with compensation in case the borrower defaults
Credit Enhancement
Because the overall credit risk decreases, the borrowers credit rating goes up, projecting a false image of good credit.
Credit Enhancement
There are many different types of credit enhancement. But the three most common forms are called subordination, overcollateralization, and excess spread.
Credit Enhancement
Trustee
ABS
ABS
ABS
Bond Bond Other CDOS
BB+ or <
Other sectors also lost money (realestate, construction, etc.) This started to affect the stock market when investors lost confidence in the economy
Sources
Inside the House of Money by Steven Drobny; pgs. 365-380 Financial Futures Markets by Brendan Brown and Charles R. Geisst