1. Securitization Sample

2. Sample Use-Case Parameters
Blockchain application samples should include detail around the following items:
Industry, Use-case, and High-level description
Participants, Assets, and Transactions
Integrations (Not included here)
Reference network topology or architecture diagram (Not included here)
Blockchain network .bna file (Not included here)

3. Identifying a Good Blockchain for Business Use Case
Questions to ask:
Is there a business network involved?
Blockchain solutions for business require a network of organizations in order to be useful.
Is information shared across multiple organizations?
Shared ledgers are at the core of blockchain solutions.
Are assets exchanged between organizations?
Is there a need for business network consensus?
Blockchain provides a method of transaction validation.
Is there a need to track asset provenance?
Blockchain solutions provides a method for creating audit trails.
Is ledger immutability necessary?
Blockchain solutions provide capabilities for tamper proof transactions.
How important is transaction finality?
Blockchain solutions reduce transaction disputes.
Is there a large market value surrounding the use case?
Indicates that a business network may be willing to invest in the technology infrastructure needed to solve the problem.

4. Example: Securitization

5. Securitization Overview
What is Securitization?
The process of transforming illiquid assets into a security.
Why is it done?
A security is more trade-able than the asset itself, and therefore more liquid than the underlying loan or receivables. Securitization can lower risk, add liquidity, and improve economic efficiency. 
Sample Participants:
Loan Originator
Special Purpose Vehicle
Investors
Rating Agency
Trustee
Financial Guarantee Provider
What can be securitized?
Any asset capable of producing cash flows
Asset Examples:
Residential Mortgage Loans
Commercial Mortgage Loans
Bank Loans and Businesses
Commercial Debt
Student Loans
Credit-Card Debt
Automobile Loans
Royalties
Advertising Revenue
Public-sector assets

6. Mortgage-Backed Securities
Use-Case:
Mortgage-Backed Securities
Business Need
Jones Financial Co. would like to securitize a subset of its mortgage loan assets in order to reduce leverage on the company’s books.
What Happens?
Jones Financial Co. will need issue securities to investors, backed by a pool of mortgage assets, through a Special Purpose Vehicle, which is an organization set up specifically for the purpose of issuing securities. The Special Purpose Vehicle will own and hold the mortgages to be securitized and will be the entity that will issue securities to investors.
Assets
Mortgage Loans
Mortgage-Backed Securities
Cash Payments
Participants
Jane Lee (Consumer)
Jones Financial Co (Loan Originator)
Jones Special Purpose Vehicle (Special Purpose Vehicle)
ABS Investors (Investors)
R&O Rating Agency (Rating Agency)
Smith Trustee (Trustee)
Main St. Guarantee (Financial Guarantee Provider)

7. Participants and Roles
Jane Lee – Consumer
Purchase homes via mortgage from the Financial Company
Jones Financial Co – Loan Originator
Originates mortgage loans to consumers
Sells mortgage loans to Special Purpose Vehicle
Services mortgage loans
Jones Special Purpose Vehicle – Special Purpose Vehicle
Organization set up by Financial Company specifically for the issuance of mortgage-backed securities.
Owns the pool of mortgage loans that are to be securitized, and issues the securities
ABS Investors – Investors
Purchases the securities from the Special Purpose Vehicle
Receives payments from securities
C&O Rating Agency – Rating Agency
Rates the pool of assets which are to be securitized
Smith Trustee – Trustee
Responsible for administering the Special Purchase Vehicle
Main St Guarantee – Financial Guarantee Provider
Enhance the credit rating of the assets

8. Securitization: Initial Set-up and Exchanges

9. Securitization: Initial Set-up and Exchanges
Jane Lee purchases a home and finances it with a mortgage originated by Jones Financial Co.
Jane Lee
Cash
Primary Participant
Jones Financial Co
Secondary Participant
Cash
Mortgages
Securities

10. Jones Special Purpose Vehicle
Securitization: Initial Set-up and Exchanges
Jones Financial Co. sets up an organization named Jones Special Purpose Vehicle, solely for the purpose of securitizing its assets.
Jane Lee
Cash
Primary Participant
Jones Financial Co
Jones Special Purpose Vehicle
Secondary Participant
Cash
Mortgages
Securities

11. Jones Special Purpose Vehicle
Securitization: Initial Set-up and Exchanges
Jones Special Purpose Vehicle must be a completely separate entity from Jones Financial Co, so Smith Trustee is brought in to handle all administration of the organization.
Jane Lee
Cash
Primary Participant
Jones Financial Co
Jones Special Purpose Vehicle
Secondary Participant
Cash
Mortgages
Securities
Smith Trustee
Trust Agreement

12. Jones Special Purpose Vehicle
Securitization: Initial Set-up and Exchanges
Jones Financial Co pools the subset of mortgage assets which it would like to securitize, and transfers ownership to Jones Special Vehicle.
Jane Lee
Cash
Primary Participant
Jones Financial Co
Jones Special Purpose Vehicle
Secondary Participant
Cash
Mortgages
Mortgage Assets
Securities
Smith Trustee
Trust Agreement

13. Jones Special Purpose Vehicle
Securitization: Initial Set-up and Exchanges
Main St Guarantee is brought in to perform third-party credit enhancement of the pool of mortgage assets, in advance of an asset credit rating.
Jane Lee
Cash
Primary Participant
Jones Financial Co
Jones Special Purpose Vehicle
Secondary Participant
Cash
Mortgages
Mortgage Assets
Securities
Smith Trustee
Main St Guarantee
Trust Agreement
Credit Enhancement

14. Jones Special Purpose Vehicle
Securitization: Initial Set-up and Exchanges
R&O Rating Agency performs a credit rating on the pool of mortgage assets, in order to make the assets more marketable.
Jane Lee
R&O Rating Agency
Credit Rating
Cash
Primary Participant
Jones Financial Co
Jones Special Purpose Vehicle
Secondary Participant
Cash
Mortgages
Mortgage Assets
Securities
Smith Trustee
Main St Guarantee
Trust Agreement
Credit Enhancement

15. Securitization: Initial Set-up and Exchanges
With the credit rating performed, Jones Special Purpose Vehicle issues mortgage asset-backed securities to ABS Investors.
Jane Lee
R&O Rating Agency
Credit Rating
Cash
Primary Participant
Jones Financial Co
Jones Special Purpose Vehicle
ABS Investors
Secondary Participant
Cash
Mortgages
Mortgage Assets
Mortgage Asset Backed Securities
Securities
Smith Trustee
Main St Guarantee
Trust Agreement
Credit Enhancement

16. Securitization: Initial Set-up and Exchanges
Jones Special Purpose Vehicle receives sale proceeds as a result of the ABS issuance.
Jane Lee
R&O Rating Agency
Credit Rating
Cash
Primary Participant
Jones Financial Co
Jones Special Purpose Vehicle
Sale Proceeds
ABS Investors
Secondary Participant
Cash
Mortgages
Mortgage Assets
Mortgage Asset Backed Securities
Securities
Smith Trustee
Main St Guarantee
Trust Agreement
Credit Enhancement

17. Securitization: Initial Set-up and Exchanges
To complete the initial process, Jones Special Purpose Vehicle transfers the sale proceeds received from ABS Investors to Jones Financial Co.
Jane Lee
R&O Rating Agency
Credit Rating
Cash
Primary Participant
Jones Financial Co
Sale Proceeds
Jones Special Purpose Vehicle
Sale Proceeds
ABS Investors
Secondary Participant
Cash
Mortgages
Mortgage Assets
Mortgage Asset Backed Securities
Securities
Smith Trustee
Main St Guarantee
Trust Agreement
Credit Enhancement

18. Securitization: Ongoing Exchanges

19. Securitization Process – Ongoing Exchanges
Jane Lee makes her mortgage payments to Jones Financial Co
Jane Lee
Mortgage Payments
Primary Participant
Jones Financial Co
Secondary Participant
Cash
Mortgages
Securities

20. Jones Special Purpose Vehicle
Securitization Process – Ongoing Exchanges
Jones Financial Co transfers the asset pool’s mortgage payments to Jones Special Purpose Vehicle.
Jane Lee
Mortgage Payments
Primary Participant
Jones Financial Co
Jones Special Purpose Vehicle
Secondary Participant
Cash
Mortgages
Mortgage Payments
Securities

21. Securitization Process – Ongoing Exchanges
Jones Special Purpose Vehicle transfers Mortgage Servicing Fees to Jones Financial Co, for servicing the mortgages to consumers like Jane Lee.
Jane Lee
Mortgage Payments
Primary Participant
Mortgage Servicing Fees
Jones Financial Co
Jones Special Purpose Vehicle
Secondary Participant
Cash
Mortgages
Mortgage Payments
Securities

22. Securitization Process – Ongoing Exchanges
Jones Special Purpose Vehicle makes payments to ABS Investors holding the Mortgage Asset Backed Securities.
Jane Lee
Mortgage Payments
Primary Participant
Mortgage Asset Backed Securities Payments
Servicing Fees
Jones Financial Co
Jones Special Purpose Vehicle
ABS Investors
Secondary Participant
Cash
Mortgages
Mortgage Payments
Securities

23. Securitization Process – Ongoing Exchanges
Smith Trustee continues to fulfill the responsibilities of the trust agreement to administer Jones Special Purpose Vehicle, and Main St Guarantee continues to fulfill responsibilities related to asset credit enhancement.
Jane Lee
Mortgage Payments
Primary Participant
Mortgage Asset Backed Securities Payments
Servicing Fees
Jones Financial Co
Jones Special Purpose Vehicle
ABS Investors
Secondary Participant
Cash
Mortgages
Mortgage Payments
Securities
Smith Trustee
Main St Guarantee
Trust Agreement
Credit Enhancement

24. Backup