F126. Issuers of Asset-Backed Securities

Federal Reserve definition for F126 flow of funds table

Issuers of asset-backed securities are 'special purpose vehicles' (SPVs), entities established by contractual arrangement to hold assets and to issue debt obligations backed by the assets.

The SPVs are similar to federally related mortgage pools in that they are not actual institutions, but are created for bookkeeping purposes.

The financial assets of the sector are federally related mortgage pool securities and various types of loans, including student and business loans, mortgages, consumer credit (such as automobile loans and credit card receivables), and trade credit.

These assets, often referred to as securitized assets, have been transferred from the balance sheets of the institutions that originated the loans (in most cases commercial banks, thrift institutions, and finance companies) to the balance sheets of the SPVs.

Another asset of the sector is motor vehicles leased to consumers; the leases were originally held by finance companies but have now been securitized.

Acquisitions of the automobiles by the issuers of asset-backed securities sector, shown as fixed investment in table F.126, occurs when the leases are securitized and the automobiles are removed from the balance sheet of the finance companies.

The leases themselves are not financial assets of the sector or of the original finance-company lessor and are not liabilities of the household sector; rather, lease payments are treated as consumer expenditures by the lessee and as current income of the issuers of asset-backed securities sector.

The obligations issued by the SPVs in conjunction with the asset transfers are typically medium- to long-term corporate bonds as well as commercial paper; they represent claims against the assets that have been pooled as collateral.

The originators of the assets receive cash proceeds from the sale of the obligations and may continue to service the loans, thereby earning fee income.

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