Asset-Backed Security

Asset-backed securities, or ABS, are bonds created from various types of consumer debt.

When consumers borrow money -- whether by taking out a home-equity or auto loan, or by running a balance on a credit card -- their loans become assets on the books of the entity that extended the credit -- a bank, an auto finance company or a consumer finance company.

The assets may be sold to a trust -- a corporation that exists only on paper, and whose sole purpose is to issue bonds backed by the assets it contains -- asset-backed securities. If, for example, your car loan has been "securitized," your payments on the loan flow through the trust to the investors in the asset-backed securities issued by the trust.

The main types of asset-backed securities are home-equity loans, credit-card receivables, auto loans, mobile home loans and student loans. Asset-backed securities are purchased primarily by institutional investors, including corporate bond mutual funds. They are a variety of spread product and are evaluated as such.

TheStreet Glossary

TheStreet Premium Services

Jim Cramer
Jim Cramer's Action Alerts PLUS:
Trade right alongside a Wall Street pro — enjoy access to his Charitable Trust portfolio and be sent trade alerts BEFORE he makes a move. Learn More
OptionsProfits
OptionsProfits:
Get 50+ trade ideas a week from the industry's top options experts. Plus — exclusive commentary on market trends and essential trading tools. Learn More
Real Money
Real Money:
Our team of professional Wall Street Pros — including Jim Cramer, Doug Kass, and Nicholas Vardy — delivers intelligent analysis, timely trade ideas, and colorful commentary. Learn More
Stocks Under $10
Stocks Under $10:
Break into the market with small- and mid-cap stocks... all $10 or less! David Peltier tells you exactly which low-priced stocks he's buying and selling. Learn More
Dow Jones S&P 500 NASDAQ 10-Year Note
12,454.83 1,317.82 2,837.53 17.45
Oil *
107.26
DOWN
74.92
DOWN
2.86
DOWN
1.85
DOWN
0.14
10 Yr
1.74%
SPDR Gold
152.68
-0.60%
-0.22%
-0.07%
-0.80%
Data delayed 20 minutes

Top Stories and Tools

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

We respect your privacy.
Podcasts

Connect with TheStreet