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CMA Final · Strategic Financial Management · Securitization

A housing finance company pools 2,000 loans with an outstanding principal of Rs 400 crore into a special purpose vehicle (SPV), which issues pass-through certificates (PTCs) to investors. Which party is the legal owner of the pooled receivables after a true sale?

The SPV or trust is the legal owner of the pooled receivables. In a true sale the originator transfers the loans to the SPV, which holds them for PTC investors, so the assets leave the originator's balance sheet and become bankruptcy-remote.

  1. AThe originator
  2. BThe SPV or trust holding the pool for investorsCorrect
  3. CThe rating agency
  4. DThe servicer

Explanation

In a true-sale securitization the originator transfers the receivables to the SPV, which holds them for the benefit of PTC investors. The originator keeps no ownership and the pool is taken off its balance sheet. The originator is wrong because after a true sale it only acts as servicer or credit enhancer, if at all.

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