Fred Motor Company Sells most of its cars on retails sale installments contracts. (i.e. auto loans). The
Question:
Fred Motor Company Sells most of its cars on retails sale installments contracts. (i.e. auto loans). The customer buys automobiles and Fred loans the customers the money for the purchase with the autos as collateral and receives principal and interest payments on the loans until they mature. The loans have maturities of 48 to 60 months and Fred will also collect principal and interest payments and send out notices to defaulters and reposes and dispose of the autos if the customers do not make timely payments.
Fred has 50,000 auto loans totaling $1 billion that it would like to remove from its balance sheet and use the proceeds to make more auto loans. It accomplishes by selling the loan portfolio to a special purpose entity called Auto Loan Trust for $1 billion. Then the Auto loans Trust buys these loans and then sells it to the investors in the form of asset backed securities
Question:
1.What is an Asset backed securities?
2.What are the sources of promise payments to investors in an asset back securities with to this case?
3.Who is the servicer of the auto loans and why ?