Securitization is the process where illiquid assets or group of assets: receivables, credit card debts, car loans, student loans, home mortgages, commercial mortgages, etc. are pooled together into reference portfolio, assessed by a government approved rating agency to determine their viability and repackaged into interest-bearing securities and issued to the investing public- institutional investors, hedge funds and the general public.The pool assets are usually sliced into tranches- junior, mezzanine and senior- based on the report of the rating agency before they are traded as securities.The return on investment (ROI) on the traded securities is dependent on the performance of the underlying assets. Thus, if the underlying assets perform optimally, then investors will have a positive ROI.
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