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What is the definition of Asset-Backed Securities?

WE ANSWER:

Asset-Backed Securities are bonds or financial securities that are backed by a loan, or a pool of loan. These may also be backed by receivables against assets (other than real estate), as well as a lease, royalties and credit card debt.

Called an ABS for short, this is very similar to a mortgage-backed security, except that these do not use mortgage-based securities to back it up.

With asset-backed securities, the company that originated the underlying loans or receivables does not stand as the guarantor or the obligor. Thus, it is important for those looking to invest in asset-backed securities to evaluate the standing of the insurer or the guarantor, as well as the extent of investment protection they will provide.

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