Mortgage Based Securities

Subprime Sector

Credit Default Swap

Asset Backed Securities

Asset-Backed Securities

– ABS derive their cash flows from a pool of underlying assets• MBS = mortgage backed securities• CARS = certificates for automobile receivables• CARDS = certificates for amortizing revolving debts

(Credit Cards)• HELS = home equity loan securities

Asset-Backed Securities

– The underlying assets generate cash flows of principal and interest which can be repackaged and sold to investors.

Fixed income assets

Principal

Interest

Asset-backed securities

Asset-Backed Securities

– In ABS, the underlying assets are collected into a pool.• Pool assets are standardized.

– The asset pool is placed in trust.– Claims on the cash flows generated by the asset

pool are structured:• Pass-through structures• Multi-class structures

– Securities representing these claims are sold.