Securitization is the process whereby loans were sold to Wall Street and then sold to investors as bonds.  It is a process that is complicated, and filled with legals issues.  This article will attempt to simplify the understand of this process.  It will not cover Securitization in complex detail.

There are a number of parties involved in the Securitization process.  These entities can go by different names but the functions are the same:

1. Borrower  -  The person borrowing the money.
2. Broker  -  The person who represents the borrower and arranges the loan.
3. Origination  -  This is the lender, the entity who funds the loan.
4. Sponsor  -  The entity who collects all the loans together and sells the loans to the Depositor.
5. Depositor  -  The entity who creates the Trust and sells the loans to the Trust.
6. Issuing Entity  -  The entity who issues the bond
7. Trust  -  Bankruptcy remote vehicle that holds all the loans.
8. Trustee  -  The entity that after the bonds are sold, is responsible for overseeing the payments to investors and other necessary requirements of the Pooling and Servicing Agreement that created the Trust and the Securitization.
9. Master Servicer  -  The entity that is responsible for collecting the loan payments and other associated functions with regard to servicing loans.
10. Sub-Servicer  -  An entity designated by the Master Servicer to collect the payments.
11. Certificates  -  The bonds that are sold to investors.
12. Custodian  -  The entity that holds and stores all original loan documents. 

The actual process that was involved is

• Borrower needed a loan and went to a broker.  The broker did the paperwork and took the loan to the Originator who approved.
• Originator  funded that loan and many others.  Origination bundled the loans together and sold them to the Sponsor.
• Sponsor collects all the loans from the Originator and bundles them together and sells them to the Depositor.
• The Depositor takes all of the loans, and then creates the Trust to hold the loans.
• The Trust divides the loans into tranches,  and then has the tranches rated as to quality.
• The tranches  are then sold as bonds to Wall Street Investors.  Incredibly, these tranches could then be broken up and resold again and again as bonds.