Equity (finance)

I went to a bank to ask questions about an equity loan. The salesperson was unable to explain to me why it is termed an 'equity' loan.


Equity (finance)

In accounting and finance, equity is the residual claim or interest of the MOST JUNIOR CLASS of investors in assets, after all liabilities are paid. If valuations placed on assets do not exceed liabilities, negative equity exists. In an accounting context, Shareholders' equity (or stockholders' equity, shareholders' funds, shareholders' capital or similar terms) represents the remaining interest in assets of a company, spread among individual shareholders of common or preferred stock.

At the start of a business, owners put some funding into the business to finance operations. This creates a liability on the business in the shape of capital as the business is a separate entity from its owners. Businesses can be considered to be, for accounting purposes, sums of liabilities and assets; this is the accounting equation. After liabilities have been accounted for, the positive remainder is deemed the owner's interest in the business.

This definition is helpful in understanding the liquidation process in case of bankruptcy. At first, all the secured creditors are paid against proceeds from assets. Afterward, a series of creditors, ranked in priority sequence, have the next claim/right on the residual proceeds. Ownership equity is the last or residual claim against assets, paid only after all other creditors are paid. In such cases where even creditors could not get enough money to pay their bills, nothing is left over to reimburse owners' equity. Thus owners' equity is reduced to zero. Ownership equity is also known as risk capital, liable capital or simply, equity.



I feel it safe to presume that if you hold any stock, bonds, or other financial instruments, this can be considered prima facia evidence of income.

After learning this, why would anyone want to hold stock personally?

These images might add something. Maybe an audio recorder? Supposing you could find a banker who could help you, that is.

Quote:

---

Originally Posted by David Merrill

These images might add something. Maybe an audio recorder? Supposing you could find a banker who could help you, that is.

---

This is different. Equity (law) is a remedial form of law, a branch of the law of remedies. Equity (finance) is the residual claim or interest of the most junior class of investors in assets. The latter is from the perspective of accounting and finance.

People are purchasing items as investors possessing a portion, interest, claim, stake in an item holding it in servitude (Roman Civil Law).

This is all in contradistinction to holding an item in dominion (Roman Civil Law) or in allodium (English Common Law).

Let it also be said possessing these equities in your own name is probably prima facie evidence of income and thus liable for tax.

Quote:

---

Originally Posted by shikamaru

This is different. Equity (law) is a remedial form of law, a branch of the law of remedies. Equity (finance) is the residual claim or interest of the most junior class of investors in assets. The latter is from the perspective of accounting and finance.

People are purchasing items as investors possessing a portion, interest, claim, stake in an item holding it in servitude (Roman Civil Law).

This is all in contradistinction to holding an item in dominion (Roman Civil Law) or in allodium (English Common Law).

Let it also be said possessing these equities in your own name is probably prima facie evidence of income and thus liable for tax.

---

Thank you! That is a very edifying correction. No wonder the banker had no idea of how to explain it. It is some sort of sophistry and misdirection.

It sounds like you are talking about the mortgage-based securities that Timothy GEITHNER intends to start liquidating should Congress fail to raise the Debt Ceiling. Check out the end of his letter to Congress:

http://savingtosuitorsclub.net/attac...8&d=1303169435

Securities are another beast. Check this out.

Quote:

---

Security

A security is generally a fungible, negotiable financial instrument representing financial value.[1] Securities are broadly categorized into debt securities (such as banknotes, bonds and debentures) and equity securities, e.g., common stocks; and derivative contracts, such as forwards, futures, options and swaps. The company or other entity issuing the security is called the issuer. A country's regulatory structure determines what qualifies as a security. For example, private investment pools may have some features of securities, but they may not be registered or regulated as such if they meet various restrictions.

Securities may be represented by a certificate or, more typically, "non-certificated", that is in electronic or "book entry" only form. Certificates may be bearer, meaning they entitle the holder to rights under the security merely by holding the security, or registered, meaning they entitle the holder to rights only if he or she appears on a security register maintained by the issuer or an intermediary. They include shares of corporate stock or mutual funds, bonds issued by corporations or governmental agencies, stock options or other options, limited partnership units, and various other formal investment instruments that are negotiable and fungible.

---

Mortgage backed securities

Quote:

---

A mortgage-backed security (MBS) is an asset-backed security that represents a claim on the cash flows from mortgage loans through a process known as securitization.

....

These securitization trusts include government-sponsored enterprises and private entities which may offer credit enhancement features to mitigate the risk of prepayment and default associated with these mortgages. Since residential mortgages in the United States have the option to pay more than the required monthly payment (curtailment) or to pay off the loan in its entirety (prepayment), the monthly cash flow of an MBS is not known in advance, and therefore presents risk to MBS investors.

---

Curtailment and prepayment are risks to investors. How about them apples?


Securitization

Quote:

---

Securitization is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations and selling said debt as bonds, pass-through securities, or Collateralized mortgage obligation (CMOs), to various investors. The principal and interest on the debt, underlying the security, is paid back to the various investors regularly. Securities backed by mortgage receivables are called mortgage-backed securities, while those backed by other types of receivables are asset-backed securities.

The granularity of pools of securitized assets is a mitigant to the credit risk of individual borrowers. Unlike general corporate debt, the credit quality of securitised debt is non-stationary due to changes in volatility that are time- and structure-dependent. If the transaction is properly structured and the pool performs as expected, the credit risk of all tranches of structured debt improves; if improperly structured, the affected tranches will experience dramatic credit deterioration and loss.[1]

---

Collateralized mortgage obligations

Quote:

---

A collateralized mortgage obligation (CMO) is a type of financial debt vehicle that was first created in 1983 by the investment banks Salomon Brothers and First Boston for U.S. mortgage lender Freddie Mac. (The Salomon Brothers team was led by Gordon Taylor. The First Boston team was led by Dexter Senft[1]).

Legally, a CMO is a special purpose entity that is wholly separate from the institution(s) that create it. The entity is the legal owner of a set of mortgages, called a pool. Investors in a CMO buy bonds issued by the CMO, and they receive payments according to a defined set of rules. With regard to terminology, the mortgages themselves are termed collateral, the bonds are tranches (also called classes), while the structure is the set of rules that dictates how money received from the collateral will be distributed. The legal entity, collateral, and structure are collectively referred to as the deal.

Investors in CMOs include banks, hedge funds, insurance companies, pension funds, mutual funds, government agencies, and most recently central banks. This article focuses primarily on CMO bonds as traded in the United States of America.

The term collateralized mortgage obligation refers to a specific type of legal entity, but investors also frequently refer to deals issued using other types of entities such as REMICs as CMOs.

---

Funny what you learn the deeper you dig .....

Wow! You are a great teacher.

If you want to learn more about the mortgage backed securities market and what happened in the Sub-Prime mortgage meltdown, read the book "The Big Short" More info here

http://en.wikipedia.org/wiki/The_Big_Short

This certainly puts things into perspective.

I figured they would be selling the mortgage-backed securities that were results of any foreclosures.

But I can see that they would also sell the securities of which mortgages are current and on time.

We have two principal divisions of securities: debt and equity securities.

Equity is ownership interest amongst the hierarchy of investors. The creditors have a higher ranked status than owners especially with respect to liquidation under bankruptcy.

I may have to drag in the term proprietor.

Heeeey .... get this ...

Quote:

---

Proprietor

Etymology

From Latin proprietor (see below), from proprietas, 'property', from proprius '(one's) own'

Definitions

An owner

A sole owner of an unincorporated business, also called a sole proprietor

One of the owners of an unincorporated business, a partner

(history) One or more persons to whom a colonial territory is assigned, like a fief, including its administration

---

I see a lot of trusts and split title in there....

Quote:

---

sole proprietorship

(law) A business that is wholly owned by a single person, who has unlimited liability.

---

Some more ...

Entreprendre

Quote:

---

Etymology

Middle French from Old French entreprendre (“to begin something, undertake”), a loan translation of Frankish *underneman (“to undertake”) from *under (“between, among”) + *neman (“to take”). Compare Old High German untarneman "to undertake" (German Unternehmen), Old English underniman "to undertake", Dutch ondernemen "to undertake". More at entre, prendre.

entreprendre

to undertake

---

Entrepreneur ...
To undertake .... assumpsit !!

Quote:

---

undertake

Verb

undertake (third-person singular simple present undertakes, present participle undertaking, simple past undertook, past participle undertaken)

(transitive) To take upon oneself; to start, to embark on (a specific task etc.).

He undertook a course of medication.

(intransitive) To commit oneself (to an obligation, activity etc.).

He undertook to take more exercise in future.

(informal) to overtake on the wrong side.

I hate people that try and undertake on the motorway.

(archaic, intransitive) To pledge; to assert, assure; to dare say.
(obsolete, transitive) To take by trickery; to trap, to seize upon.

---