Collateralization


Collateralization
The act where a borrower pledges an asset as recourse to the lender in the event that the borrower defaults on the initial loan. Collateralization of assets gives lenders a sufficient level of reassurance against default risk, which allows loans to be issued to individuals/companies with less than optimal credit history/debt rating.

Mortgage financing allows borrowers to hold title over their own home despite acquiring it via borrowed funds. However, in the terms of the mortgage, if the borrowers default on the mortgage payments, the lender has a right to sell the property to recoup the loan amount.

Businesses can use collateralization for debt offerings. Such bonds may go into details as to the specific asset, such as equipment and/or property that is being pledged for the repayment of the bond offering in the event of default. The increased level of security offered to a bondholder typically means that the coupon rate offered on the bond will be lower as well.


Investment dictionary. . 2012.

Look at other dictionaries:

  • Collateralization — For uses of the word collateralization in finance, see Securitization and Cross collateralization. This article is about a pathological process. For the anastomosis between vessels in physiology, see Arteriovenous anastomosis. In medicine,… …   Wikipedia

  • collateralization — See collateralize. * * * …   Universalium

  • collateralization — noun The act or process of collateralizing …   Wiktionary

  • cross-collateralization — USA cross collateralization, Also known as bootstrapping. A practice used in DIP financing arrangements in which a debtor grants its existing prepetition lender a security interest in assets acquired after the bankruptcy filing (such as… …   Law dictionary

  • Cross-collateralization — is a term used when the collateral for one loan is also used as collateral for another loan. If a person has borrowed from the same bank a home loan secured by the house, a car loan secured by the car, and so on, these assets can be used as cross …   Wikipedia

  • Cross Collateralization — The act of using an asset that is currently being used as collateral for a loan is also used as collateral for a second loan. If the debtor was unable make either loan s scheduled repayments in time, the affected lender(s) can eventually force… …   Investment dictionary

  • cross collateralization — Extension of the creditor s interest in property of the debtor so that collateral for one debt also serves as collateral for one or more other debts. American Banker Glossary …   Financial and business terms

  • over collateralization — ( OC) A type of credit enhancement used in some asset backed securities and some private mortgage backed securities. The principal amount of the collateral pledged for a given security exceeds to the principal amount of the security. American… …   Financial and business terms

  • over-collateralization — ( OC) A type of credit enhancement used in some asset backed securities and some private mortgage backed securities. The principal amount of the collateral pledged for a given security exceeds to the principal amount of the security. American… …   Financial and business terms

  • collateralize — collateralization, n. /keuh lat euhr euh luyz /, v.t., collateralized, collateralizing. 1. to secure (a loan) with collateral. 2. to pledge (property, securities, etc.) as collateral. Also, esp. Brit., collateralise. [1940 45; COLLATERAL + IZE] * …   Universalium


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