Asset securitization is the process of pooling and then packaging cash flow producing assets into marketable securities. These assets can be credit card debt or mortgages, or any asset that produces cash on a regular basis. If you know how to structure these securities properly, this minimizes the risks of the assets. However, a badly structured securitization can lead to a rapid deterioration of the value of the underlying asset should there be an interruption in cash flow or a significant downturn in the economy.

These risk factors are why a proper asset securitization and loan packaging education and training is vital, should you want to enter this field. The means to attain this training range from traditional online courses to instructor led course to associations within the industry. Whichever route you choose it's important to understand the basics of the loan packaging process and build on this foundation through higher level training. However, before you begin the process there are few items to consider:

1. Study the basics steps in the securitization of loans.

2. Attend training in the field of loan securitization.

3. Contact bank securitization institutes and forums for additional educational opportunities.

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Review the essential elements of business loan packaging and securitization

Loan securitization requires the ability to know the process and use it to structure these tradeable assets in such a way where you can minimize risk as much as possible. You can't do this without a solid educational foundation. Upon establishing this base, you can then begin to seek out higher levels of training and education.

I recommend: Enroll in the asset backed securitizations introduction classes at the New York Institute of Finance. For a detailed introduction to packaging loans, review the information from Mayer, Brown & Platt. Purchase the introduction to securitization textbook available at John Wiley & Sons.

Register for training courses in the field of securitizing loans

For anyone wanting to enter this industry, classroom training, either online or in person, plays an integral role. Most of these courses are specialized but don't offer any type of certification within the field. However, you can get a finance degree from most any university that'll offer securitization training within the curriculum.

I recommend: Examine the training classes at Clavex and Global Financial Training and Technology.

Use industry organization to gain further asset securitization information training

Outside of traditional training courses, industry institutes and forums can offer loan securitization information and educational resources. Not only can these entities provide a traditional education but they also have a network of knowledgeable industry professionals that can assist in your application of any training.

I recommend: Contact the Investment Training and Consulting Institute for available educational resources. Speak to a representative at the American Securitization Forum for additional training opportunities. Utilize the training seminars offered by the Center for Financial Education.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Before enrolling in any class on packaging loans and securitization, be sure to ask for references and check with the Better Business Bureau to make sure the training company is above reproach.

Asset securitization is the process of structuring, combining and repackaging of cash-flow-producing assets. If any asset is generating cash payments for your company, a business can bundle these assets together and sell them on the asset-backed securities market. The value of this loan packaging depends on the viability of the underlying security. For instance, say your company has receivables from credit card debt and then issues asset-backed security. The market value of this debt relies on credit history of the various companies that pay these receivables.

Asset securitization is a relatively new financial vehicle, which began in the 1970s and now is a trillion dollar industry. However, with the explosive growth of the industry come some complications. This process is not for the faint of heart, as it can pose significant risk if a business does not understand the process. Before your business decides to begin asset securitization and loan packaging, consider the following:

1. Know the history and process of asset securitization and loan packaging.

2. Understand the issues of loan securitization as it relates to your business.

3. Use the asset securitization process and the securitization of loans to increase your company's profitability while decreasing risk.

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Analyze the steps necessary for asset securitization

There are times when your business may need the immediate returns from overall debt obligation and is willing to sell the cash flows from this debt to receive the bulk of amount owed to your business. However, before making the decision to securitize your debt, it is important to understand the process by which this happens.

I recommend: Attend an asset securitization course to better comprehend the process. The New York Institute of Finance offers an online course that covers most every securitization topic. Join the American Securitization Forum, which regularly host informational seminars that help explain the practice of asset and loan securitization.

Make note of the differences between loan and asset backed securitizations

Loan securitization is primarily the way banks package their loans for the secondary market. Meanwhile, asset securitization is a primary way for businesses to pool a positive income stream from the debt it owns and sell it to other entities as a source of immediate funding.

I recommend: Analyze asset securitization information from Global Research that details the potential pitfalls of the procedure. Evaluate the loan securitization information available from Vinod Kothari's Securitization Website, which details securitizing loans from the banking side of the equation.

Seek the advice from a bank securitization professional within the industry

Even if your company has in-house financial professionals who understand securitization of loans or other assets, it is a prudent practice to obtain the advice of outside counsel on the process.

I recommend: Horan, Martello, Morrone, P.C. is a company that can assist in the loan securitization process. Talk to the business loan packaging professionals at Commercial Loan Packaging to determine the financial efficacy of the procedure. Consult with Deutsche Bank, one of the largest asset securitization firms in the world.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  No matter how safe any investment vehicle appears, there is always inherent risk involved in any transaction. It is imperative that you determine the effectiveness and the risks before beginning asset or loan securitization as a means of attaining capital.

You can securitize and package any asset provided there is an underlying payment stream. For example, one of the most popular types of asset-backed securities is one that uses mortgage payments for the cash payment stream. The structure of each securitized asset is a direct indicator of the risk of the investment. One that's properly structured will provide a consistent return with negligible risk. However, the structure of many of these assets can be questionable, making their risk premiums extremely high. Finally, there's the underlying payment because if the payments stop, the value of the securitized asset can fall precipitously.

That's why it's important to understand the key terms of these financial vehicles before making an investment. The following are a few terms that will help you know how these securitized assets operate:

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Special-purpose vehicle company

The term special-purpose vehicle company, or an SPV, came to negative prominence during the Enron corporate scandal. However, a SPV can serve a valuable business function. When a company creates asset-backed securities, it often structures a special-purpose vehicle company to hold these assets. It can limit the risk for a company and make it easier to manage these securities.

I recommend: Review the presentation on the role of special-purpose vehicles in the asset -backed securities market available at SlideShare.

Asset-backed and mortgage-backed securities

As the asset securitization and loan-packaging market grew over the years there became two prominent classes, which are asset-backed and mortgage-backed securities. You'll sometimes see the mortgage class classified in with the asset class. Nevertheless, both are a package of loans that have some form of debt at their core. As you can guess, mortgage-backed securities use mortgages, and assets-backed securities utilize a wider range of debt from credit card to business and personal loans to leases.

I recommend: There is extensive information on asset-backed securities at the Liberty Fund. For a concise definition, you can review the information at Investopedia.

Uniform commercial code (UCC)

When you evaluate the securitization of assets, it's important to understand the Uniform Commercial Code (UCC), more specifically Article 9 of this code. Article 9 governs the way a company can securitize assets and package loans.

I recommend: An extensive section on Article 9 of the UCC is offered by Cornell University Law School.

Floating rate notes

Securitized assets that reset at a given rate at regular intervals are floating rate notes. When viewing or structuring securitized assets, you often see this term. The given rate for the reset is usually the LIBOR or the U.S. Treasury bill rate.

I recommend: Study the detailed explanation of floating rate notes available at Merrill Lynch.

Securitization structure

Assets securitization and loan-packaging risk correlate directly with the structure of these assets. Each type of underlying asset has its own structuring challenges. It's almost like building a house with a solid foundation, and the house will hold up during any storm. However, a weak foundation can be trouble in turbulent market conditions.

I recommend: Evaluate the securitization primer offered by Holland & Knight.

Risk management

Risk management is another chief reason a company may decide to securitize assets. Securitization allows a company to pool debt into a separate asset class, thereby reducing risk to its overall balance sheet. However, if the structure of these assets is poor, it can lead to more risk, not less.

I recommend: There are many articles on this subject at Risk Management.