When a bank provides someone with financing to purchase a home over 20 or 30 years, it is not simply waiting for the next installment to be paid; it is tying up part of its funds in a long-term asset for years.

But what if the bank could convert this financing into liquidity before its term expires?

This is where the concept of securitization comes in.

The Saudi Real Estate Refinance Company (SRC) plans to issue Sharia-compliant securities backed by a residential mortgage portfolio worth approximately SAR 431.3 million. The transaction, named RMBS-2, is expected to be the first Saudi deal of its kind backed by residential mortgages to receive a publicly disclosed credit rating, following SRC’s launch of the first local RMBS transaction in 2025 without a comparable public rating.

What Does Securitization Mean in Simple Terms?

Suppose a bank has 1,000 mortgages, with each customer making a monthly payment.

Rather than holding these mortgages until the end of their terms, the bank can sell some of them to an entity such as SRC.

SRC pools a large number of mortgages into a single portfolio, then issues securities backed by the resulting cash flows that investors can purchase.

Put simply:

The customer makes a payment → the payment enters the portfolio → the cash flows are used to service the investment instrument.

In this way, a relatively illiquid asset—the mortgage financing extending over many years—is transformed into an instrument that can be linked to the capital market.

Why Would a Bank Sell a Performing Mortgage in the First Place?

Because the issue is not always the quality of the financing, but rather liquidity and capital.

If a bank retains every mortgage it provides until maturity, long-term assets accumulate on its balance sheet. As lending expands, it needs additional resources and capital to continue extending new financing.

When it sells part of its portfolio, however, it recovers liquidity that can be used again.

The cycle then looks roughly like this:

The bank provides financing → sells the portfolio → recovers liquidity → can finance new customers.

That is why SRC describes its role as a link between funding providers and the capital market, with the aim of providing liquidity and easing some of the capital pressures on lenders.

What Does the Investor Receive?

Instead of directly financing a single home, an investor can invest in an instrument backed by a portfolio containing a large number of mortgages.

Such issuances are typically divided into tranches that differ in their level of risk and priority in receiving cash flows.

For the anticipated transaction, data cited from Fitch indicate that the senior tranche is expected to receive an AAA rating. The portfolio’s average loan-to-value ratio is also approximately 58%, one of the indicators used to assess the level of protection provided by the property’s value against the outstanding financing.

However, a high rating does not mean that risks are absent; borrower quality, defaults, prepayments, property prices, and the transaction structure remain factors affecting the performance of these instruments.

What Is the Difference Between the Primary and Secondary Markets?

When someone obtains financing to purchase a home, the transaction takes place in the primary mortgage finance market.

When that financing is later sold, pooled with other mortgages, and converted into an instrument for investors, we move into the secondary market.

The existence of an active secondary market is important because financing does not remain confined solely to the customer and the bank; it can also be linked to investors and capital markets.

This means that the funds financing home purchases can come indirectly from a broader base of investors, rather than solely from bank deposits or their traditional funding sources.

Why Is This Step Important?

SRC completed the first local issuance of mortgage-backed securities in 2025 with the aim of creating a new asset class and enhancing liquidity in the mortgage finance market. Moving to an issuance with a publicly disclosed credit rating could help investors assess risks more clearly and represent another step in the development of this market.

Ultimately, securitization does not directly create new homes, but it changes how the money that finances them flows.

The payment made by a homeowner can become part of the cash flows of an investment instrument, while the money an investor pays to purchase that instrument can ultimately return to the financing system to support other mortgages.

In this way, a mortgage becomes more than a contract between a customer and a bank—it becomes part of a financial cycle linking housing, banks, and the capital market at the same time.