2006-09-22 06:58:51 · 4 answers · asked by james78 1 in Business & Finance ➔ Other - Business & Finance
An issuer (i.e. Fannie Mae, Freddie Mac, Bank of America, Citibank, HSBC, etc.) takes a pool of mortgages (let's say 1,000 mortgages) and puts them in a bucket. All of the payments from the borrowers go into that bucket each month, and a structurer tranches the risk out. That is to say they create several bonds with very specific characteristics such as a highly rated bond (AAA) that matures in 1 year, another AAA that matures in 5 years, a BBB that matures in 5 years, and so on. A typical agency (Fannie and Freddie are the two big agencies) or non-agency (mortgages that do not conform to Fannnie/Freddie guidelines) MBS will have between 8 and as high as 40 tranches. Each tranche is just a different bond, and many investors can invest in an individual bond.
MBS securities are bankruptcy remote. That means that if Bank of America pools some of its mortgages together to make an MBS, and then Bank of America were to go bankrupt, the pool of mortgages belong to the MBS, not the bank.
MBS securities are formed using the REMIC tax structure, which avoids double-taxation.
If you're working on a project, you can find a pretty good overview on wikipedia.org. Be sure to also look at ABS (Asset-backed securities), the largest sector in the ABS market are subprime mortgages. They are also referred to as Home Equity, but are not necessarily made up of HELOCs (home equity lines of credit). You should also look up CMBS (commercial MBS). If you really want to get into it, go to amazon, and look up some of Fabozzi's books, these are all standard fodder for anyone getting into this market - there are better books, but these are pretty good.
2006-09-24 03:25:35 · answer #1 · answered by frank m 2 · 0⤊ 0⤋
Mortage Backed Securities are By Fannie Mae/Freddie Mac and other government run Mortgage programs. Then they repackage the Mortgages and resell them as securities. Basically they are secured by the money that people are paying in thier mortgage. They are usually a fairly safe investment.
2006-09-22 14:07:03 · answer #2 · answered by Alexis 4 · 0⤊ 0⤋
they are promissory notes or financial securities backed by real estate mortgages .
2006-09-22 14:07:42 · answer #3 · answered by Anonymous · 0⤊ 0⤋
usually bonds or similar instruments that are invested solely in mortgages for their income and value.
2006-09-22 14:06:48 · answer #4 · answered by mzJakes 7 · 0⤊ 0⤋