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What is meant by securitization?

In the broad sense securitization refers to the development of markets for a variety of debt instruments that permit the ultimate borrower to bypass banks and other deposit taking institutions and borrow directly from lenders. In a more narrow sense it refers to the process of converting loans of various sorts into marketable securities by packaging the loans into pools and then selling shares of ownership into the pool itself. One example is mortgage-backed securities, which are securities backed by a share in a pool of mortgages. These securities pay interest and a portion of principal each month and if homeowners prepaid their mortgages may pay out additional amounts of principal before maturity.