Trusts

• Role of a Trust in securitization

• How trust is good for investors.

  • Explain how investors interests are protected

  • Explain the rights of investors

• Who is Trustee and what is the role of a Trustee. How to find and vet a trustee?

A trust is a legal arrangement where a person (called the settlor) transfers assets to another person (called the trustee). The trustee holds and manages these assets, but not for their own benefit. Instead, the trustee manages the assets for the benefit of other people (known as beneficiaries), who might include the settlor, or for a specific purpose.

A securitization trust plays a key role in turning financial assets into marketable securities. Its main functions include:

1. Holding Assets: The trust buys a group of financial assets, like loans or mortgages, from the asset originator. These assets generate cash flow, like interest or repayments.

2. Issuing Securities: The trust turns these cash flows into securities that can be sold to investors. These securities are backed by the cash flow from the original assets.

3. Managing Risk: The trust is set up in a way that separates the assets from the original company’s financial problems (like bankruptcy). This makes the investment safer for investors.

4. Enhancing Credit: The trust structures the securities to be attractive to investors by improving their credit quality, which might involve insuring the securities or having reserves.

5. Providing Liquidity: By turning assets into standardized securities, the trust makes it easier for investors to buy and sell them, increasing market activity and liquidity.