![]() To mitigate this risk, the lessee must purchase insurance naming the titling trust as beneficiary. When the number of leases is sufficient for a securitization, a beneficial interest in a specific pool of leases is transferred to a securitization trust, which then issues the auto lease ABS to investors based on the pool.Īnother risk involved in owning vehicles is vicarious liability, where the owner of the vehicle is held liable for any accident caused by anyone who had permission to use the vehicle, which, of course, includes the lessee. The leases are purchased by the titling trust directly from the dealer as they are executed. The originators retain a beneficial interest in the trust, but the vehicles are owned by the titling trust, and the customers send their lease payments to the trust. ![]() To mitigate this risk, a titling trust is created by the lease originators as a bankruptcy remote special purpose entity to actually hold the titles of the leased vehicles. If the lessor declares bankruptcy, then the leased vehicles would be subject to creditors' claims. Auto Lease SecuritizationĪ significant risk of auto lease ABS is the possible bankruptcy of the lessor. ![]() Generally the same underwriting criteria are used for both auto loans and leases, and servicing the leases is also similar. The advantages of leasing over borrowing include a lower initial cost, lower monthly payments, and less sales tax. If the customer does not exercise the purchase option, then the lessor will seek to either lease the vehicle to someone else or sell the vehicle. At the end of the lease, the customer will have the option of purchasing the vehicle for its residual value, which is the stipulated value of the vehicle at the end of the lease - it is the contractual price the customer would have to pay to buy the vehicle at the end of the lease. The fundamental difference of leasing from auto loans is that when a customer leases a vehicle, the vehicle is actually purchased by the leasing company under an agreement with the customer that the vehicle will be leased for a defined duration, when the customer will make monthly payments to the leasing company in exchange for its use. The auto lease ABS is based on the cash flow from auto lease payments. This article discusses characteristics that are specific for auto lease asset-backed securities ( ABSs). The general characteristics of both auto loan and auto lease asset-backed securities have been discussed in the previous article. Auto Lease ABS Titling Trust and Residual Risk › Money › Bonds › Bonds Types › Asset-Backed Securities Auto Lease ABS
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