Explore how securitization is transforming financial markets — turning everyday loans into powerful investment tools. This whitepaper breaks down the process, products, and post-crisis reforms that are creating smarter, safer opportunities for today’s investors.
Executive Summary:
- Securitization (Structured Finance) – The process of transforming illiquid assets (e.g., mortgages and other loans/leases) into tradable securities, enhancing funding, liquidity, and investor access. It supports credit generation by attracting funding from the capital markets to lenders, enabling more lending than they could otherwise fund from their balance sheets. Securitized products comprise almost a quarter of the U.S. fixed income markets.
- Market Segmentation – Agency-sponsored products (e.g., Agency RMBS/CMBS, CMOs, CRTs) are fully or partially guaranteed by the government (Ginnie Mae, Fannie Mae, Freddie Mac), offering strong credit stability but exposure to prepayment and interest rate risks. Private Label/Non-Agency products (e.g., Non-Agency RMBS/CMBS, ABS, and CLOs) offer higher yield and flexibility but carry greater credit and liquidity risks due to lack of government backing.
- Process – Key steps include loan origination, pooling assets into special purpose vehicles (SPVs), and issuance with credit enhancements like cash flow prioritization, overcollateralization, reserve accounts, and senior-sub structures. These mitigations address liquidity, prepayment (negative convexity), and credit exposure, tailoring risk for different investor risk appetites.
- Market Evolution and Investment Opportunity – Post-global financial crisis (GFC) reforms (e.g., Dodd-Frank risk retention rules and Consumer Financial Protection Bureau (CFPB) oversight) have made securitized markets safer. Despite their complexity, these products offer attractive risk-adjusted returns, especially for informed investors willing to navigate their unique risks and structural features.
DISCLOSURES
Opinions expressed are as of 5/31/25 and are subject to change at any time, are not guaranteed, and should not be considered investment advice.
Investing involves risk; principal loss is possible. Investments in debt securities typically decrease when interest rates rise. This risk is usually greater for longer-term debt securities. Investments in lower-rated and nonrated securities present a greater risk of loss to principal and interest than do higher-rated securities. Investments in asset-backed and mortgage-backed securities include additional risks that investors should be aware of, including credit risk, prepayment risk, possible illiquidity and default, as well as increased susceptibility to adverse economic developments. Derivatives involve risks different from — and in certain cases, greater than — the risks presented by more traditional investments. Derivatives may involve certain costs and risks such as illiquidity, interest rate, market, credit, management and the risk that a position could not be closed when most advantageous. Investing in derivatives could lead to losses that are greater than the amount invested. The Fund may make short sales of securities, which involves the risk that losses may exceed the original amount invested. The Fund may use leverage, which may exaggerate the effect of any increase or decrease in the value of securities in the Fund’s portfolio or the Fund’s net asset value, and therefore may increase the volatility of the Fund. Investments in foreign securities involve greater volatility and political, economic and currency risks and differences in accounting methods. These risks are increased for emerging markets. Investments in fixed-income instruments typically decrease in value when interest rates rise. The Fund will incur higher and duplicative costs when it invests in mutual funds, ETFs and other investment companies. There is also the risk that the Fund may suffer losses due to the investment practices of the underlying funds. For more information on these risks and other risks of the Fund, please see the Prospectus.
Investors should carefully consider the investment objectives, risks, charges and expenses of the Angel Oak Funds. This and other important information about each Fund is contained in the Prospectus or Summary Prospectus for each Fund, which can be obtained by calling 855-751-4324 or by visiting www.angeloakcapital.com. The Prospectus or Summary Prospectus should be read carefully before investing.
Index performance is not indicative of Fund performance. Past performance does not guarantee future results. Current performance can be obtained by calling 855-751- 4324.
The Angel Oak Funds are distributed by Quasar Distributors, LLC.
© 2025 Angel Oak Capital Advisors, which is the adviser to the Angel Oak Funds.