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Asset backed securities (ABS) are financial securities backed by a pool of assets that produce income, generally loans. In the case of mortgage backed securities (MBS) and commercial mortgage backed securities (CMBS), the underlying assets are, respectively, residential and commercial mortgages.

Key Takeaways An ABS is a type of investment that offers returns based on the repayment of debt owed by a pool of consumers. A CDO a version of an ABS that may include mortgage debt as well as other types of debt. These types of investments are marketed mainly to institutions, not to individual investors.

Asset securitization is the structured process whereby interests in loans and other receivables are packaged, underwritten, and sold in the form of “asset- backed” securities.

For example, asset-backed securities have been built based on cash flows from movie revenues, royalty payments, aircraft landing slots, toll roads, and solar photovoltaics. Just about any cash-producing vehicle or situation can be securitized into an ABS.

Securitization involves pooling debt obligations, such as loans or receivables, and creating securities backed by the pool of debt obligations called asset-backed securities (ABS). The cash flows of the debt obligations are used to make interest payments and principal repayments to the holders of the ABS.

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Securitization at its most basic is a two-step process: The originator sells its assets. A company will identify loans or other income-generating assets that it wants to sell off. ... The issuer sells shares of the portfolio. The issuer, having now bought the portfolio of assets, will issue tradable shares in it.