Which of the following is a disadvantage of securitization?

Which of the following is a disadvantage of securitization?

• A. time consuming
• B. huge cost to conduct
• C. requires expertise
• D. need uniformity in assets

Answer: (C)

Securitization pools assets and issues securities backed by those assets, but the process is highly specialized. It requires legal structuring, transfer mechanics to a special purpose vehicle, tax considerations, regulatory compliance, rating agency interaction, and setup of compliant servicing and governance. That level of expertise isn’t typically available in-house, so needing this specialized knowledge becomes a real disadvantage because it raises barriers to entry and creates ongoing requirements for successful execution and ongoing risk management. While time, cost, and asset uniformity can be factors in securitization, the fundamental drawback is the dependence on deep, specialized expertise to design, implement, and monitor the deal.

Securitization pools assets and issues securities backed by those assets, but the process is highly specialized. It requires legal structuring, transfer mechanics to a special purpose vehicle, tax considerations, regulatory compliance, rating agency interaction, and setup of compliant servicing and governance. That level of expertise isn’t typically available in-house, so needing this specialized knowledge becomes a real disadvantage because it raises barriers to entry and creates ongoing requirements for successful execution and ongoing risk management. While time, cost, and asset uniformity can be factors in securitization, the fundamental drawback is the dependence on deep, specialized expertise to design, implement, and monitor the deal.