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Simple English definitions for legal terms
asset-backed security
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A quick definition of asset-backed security:
An asset-backed security is a type of investment that is backed by assets, such as loans or mortgages. This means that if the borrower defaults on their loan, the investor can
A more thorough explanation:
An asset-backed security is a type of financial investment that is backed by a pool of assets, such as loans or mortgages. These assets generate cash flows, which are used to pay back the investors who bought the security.
For example, a bank may bundle together a group of mortgages and sell them as an asset-backed security to investors. The cash flows from the mortgage payments are used to pay back the investors who bought the security.
Asset-backed securities are a way for companies to raise money by selling off their assets. They are also a way for investors to diversify their portfolios and earn a return on their investment.