{"id":2131,"date":"2019-09-12T13:33:00","date_gmt":"2019-09-12T13:33:00","guid":{"rendered":"https:\/\/analystprep.com\/cfa-level-1-exam\/?p=2131"},"modified":"2025-05-07T07:29:42","modified_gmt":"2025-05-07T07:29:42","slug":"non-mortgage-asset-backed-securities","status":"publish","type":"post","link":"https:\/\/analystprep.com\/cfa-level-1-exam\/fixed-income\/non-mortgage-asset-backed-securities\/","title":{"rendered":"Non-mortgage Asset-backed Securities"},"content":{"rendered":"\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"VideoObject\",\n  \"name\": \"Introduction to Asset-Backed Securities (2025 Level I CFA\u00ae Exam \u2013 Fixed Income \u2013 Module 4)\",\n  \"description\": \"This video lesson covers securitization and its role in financial markets. It explains the benefits of securitization, key players and structures, and dives into mortgage-backed securities, asset-backed securities, collateralized debt obligations, and covered bonds. The lesson also highlights associated risks such as prepayment and credit tranching.\",\n  \"uploadDate\": \"2022-05-24T00:00:00+00:00\",\n  \"thumbnailUrl\": \"https:\/\/img.youtube.com\/vi\/9nVm9Qh4gKw\/maxresdefault.jpg\",\n  \"contentUrl\": \"https:\/\/www.youtube.com\/watch?v=9nVm9Qh4gKw\",\n  \"embedUrl\": \"https:\/\/www.youtube.com\/embed\/9nVm9Qh4gKw\",\n  \"duration\": \"PT44M50S\"\n}\n<\/script>\n\n\n\n\n<div class=\"wp-block-group is-nowrap is-layout-flex wp-container-core-group-is-layout-ad2f72ca wp-block-group-is-layout-flex\">\n\n\n<p>[vsw id=&#8221;9nVm9Qh4gKw&#8221; source=&#8221;youtube&#8221; width=&#8221;611&#8243; height=&#8221;344&#8243; autoplay=&#8221;no&#8221;]<\/p>\n<p>Many non-mortgage assets could be used as collateral in securitization such as auto loans, credit card receivables, personal loans, and commercial loans. Asset-backed securities (ABS) that are not guaranteed by a government or quasi-government entity are subject to higher credit risk.<\/p>\n<h2><strong>Auto Loan-backed Securities<\/strong><\/h2>\n<p>Auto Loan-backed Securities are backed by auto loans and lease receivables. The cash flows are the borrowers&#8217; scheduled monthly payments (interest payments and scheduled principal repayments). As such, the outstanding principal balance declines as the principal is distributed to bond classes each month.<\/p>\n<p>All auto loan-backed securities have some form of credit enhancement, such as a senior or subordinated structure. The excess interests can be retained and deposited into a reserve account for protection against future losses.<\/p>\n<h2><strong>Credit Card Receivable-backed Securities<\/strong><\/h2>\n<p>When a purchase is made on a credit card, the credit card issuer (the lender) extends credit to the cardholder (the borrower). If the lender doesn&#8217;t want to keep the receivables on its balance sheet, it can issue a Credit Card Receivable-backed Security. The cash flows of credit card receivables include interest, principal payments, and annual fees. The interest rate may be fixed or floating, and fees include late payment fees and annual membership fees.<\/p>\n<p>Credit Card Receivable-backed Securities collateral is a pool of non-amortizing loans, meaning payments on the principal are not made until a lump sum is required. The principal is reinvested to issue new loans during the lockout period.<\/p>\n<blockquote>\n<h3><strong>Question<\/strong><\/h3>\n<p>Which of the following non-mortgage asset-backed-securities is (are) amortizing loans?<\/p>\n<ol style=\"list-style-type: upper-alpha;\">\n<li data-tadv-p=\"keep\">Auto Loan-backed Securities.<\/li>\n<li data-tadv-p=\"keep\">Credit Card Receivable-backed Securities.<\/li>\n<li data-tadv-p=\"keep\">Both Auto Loan-backed Securities and Credit Card Receivable-backed Securities.<\/li>\n<\/ol>\n<p><strong>Solution<\/strong><\/p>\n<p>The correct answer is <strong>A<\/strong>.<\/p>\n<p>An amortizing loan is a loan where the principal of the loan is paid down over the life of the loan (that is, amortized) according to an amortization schedule, typically through equal payments.<\/p>\n<p>Only auto loan-backed securities are amortizing loans. On Credit Card Receivable-backed Securities, payments on the principal are not made until a lump sum is required.<\/p><\/blockquote>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>[vsw id=&#8221;9nVm9Qh4gKw&#8221; source=&#8221;youtube&#8221; width=&#8221;611&#8243; height=&#8221;344&#8243; autoplay=&#8221;no&#8221;] Many non-mortgage assets could be used as collateral in securitization such as auto loans, credit card receivables, personal loans, and commercial loans. Asset-backed securities (ABS) that are not guaranteed by a government or quasi-government&#8230;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[9],"tags":[],"class_list":["post-2131","post","type-post","status-publish","format-standard","hentry","category-fixed-income","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Non-Mortgage Asset-Backed Securities | CFA Level 1<\/title>\n<meta name=\"description\" content=\"Learn how non-mortgage assets like auto loans and credit card receivables are used as collateral in securitization.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" 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