patrick.net

I loan someone money, now that loan is thought to be worth something, so i sell it again as a product.

ex.
I loan you $20 + 5$ interest, $25 due in one week.

thus this note is worth, give you don't default - more than the $20 itself. so I auction the note, and find a buyer for $22. it's 'securitized', obviously its much more complex than that - but that's the basics.

Thanks.

If one bought a slice of an auto ABS that was not based on maturity, but say, credit risk, can it be for longer than the length of the loans within?

CL says

(On that topic, if an ABS is made of auto loans, say 3,5,7 year loans and is then sliced up, are you limited in how LONG you invest in that security, or can you go longer?)

I'm not sure that these things are sliced up.

zzyzzx says

CL says

(On that topic, if an ABS is made of auto loans, say 3,5,7 year loans and is then sliced up, are you limited in how LONG you invest in that security, or can you go longer?)

I'm not sure that these things are sliced up.

I think they are. They always list autos when discussing ABS, don't they?

http://www.forbes.com/sites/investopedia/2013/01/18/introduction-to-asset-backed-and-mortgage-backed-securities/

http://www.investinganswers.com/financial-dictionary/optionsderivatives/asset-backed-securities-abs-48

"ABC Investments may group these auto loans into tranches--groups of loans that may have common characteristics such as maturity or delinquency risk"

So I guess my question is, are the investors tied to the length of the underlying loans, or is that only if they were tranched by maturity? Can you buy a slice of the proceeds for say, a 10 year, 20 year or 30 year ABS if the loans in that pool are for 3,4 and 5 years? Same thing would be relevant for housing CDOs.