Asset Backed Security

ABS: Asset Backed Securities vs. CMBS: Commercial Mortgage Backed Securities

ABS: Asset Backed Securities vs. CMBS: Commercial Mortgage Backed Securities

Asset backed securities (ABS) are financial securities backed by a pool of assets that produce income, generally loans. In the case of mortgage backed securities (MBS) and commercial mortgage backed securities (CMBS), the underlying assets are, respectively, residential and commercial mortgages. However, unlike MBS, asset backed securities are backed by non-mortgage loans, including auto loans, student loans, credit card debt, and variety of other types of debt.

What are CMBS Tranches?

What are CMBS Tranches?

Just like asset backed securities and mortgage backed securities (MBS), commercial mortgage backed securities (CMBS) are divided into tranches based on credit risk. The highest-rated, least risky loans will be placed in the highest tranches, while the lowest-rated, riskiest loans will be placed in the lowest tranches.