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Credit Enhancement

Investors in securitised instruments take a direct exposure on the performance or the under collateral and have limited or no recourse to the originator. Hence, they seek additional cornf the form of credit enhancement. It refers to the various means that attempt to buffer invest against losses on the asset collateralising their investment. These losses may vary in frequent severity and timing, and depend on the asset characteristics, how they are animated and how are administered. The credit enhancements are often essential to secure a high level of credit and for low cost funding. By shifting the credit risk from a less-known borrower to a well strong, and larger credit enhancer, credit enhancements correct the imbalance between the lender(s)( and the borrowers. They are either external (third party) or internal crural or cash-now-driven).

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