Retained Interest Definition & Meaning | Financial Term | CSIMarket
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Glossary

Retained Interest

Financial Term

Retained Interest is a term used in financial industry to describe the ownership stake that a company has in a financial product that they have issued or managed. This could be an asset-backed security or a collateralized debt obligation. The company retains a portion of the securities in order to reduce its risk exposure or to earn ongoing income from the deal.

In simple words, Retained Interest is an amount of financial product that is held by the issuer to take a part in ongoing benefits. In financial terms, it refers to the risk exposure of the issuer of a financial product, such as a mortgage-backed security, or a pool of assets.

Retained Interest can be used as an effective risk management tool for a company. By keeping a portion of the securities, the issuer can maintain control over the product and can continue to generate revenue from it. The Retained Interest is usually the highest-quality portion of the product, meaning that it is the least risky and has the highest credit rating.

In the financial industry, Retained Interest is mostly used in the mortgage-backed securities (MBS) market. In MBS transactions, a portion of the underlying mortgage loans is held by the issuer as Retained Interest. This Retained Interest is used to ensure that the issuer has a stake in the deal, and is therefore motivated to manage the associated risks effectively. It can also be sold to investors as a separate bond, known as a Retained Interest Bond.

Overall, Retained Interest is an important concept in the financial industry that plays an important role in managing risk and generating income.


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