what is the link between mortages and investment?

Answer 1

A mortgage is a method of using property (real or personal) as security for the performance of an obligation, usually the payment of a debt.

Answer 2

The short answer is that mortgages are bundled by banks and sold as securities in the form of collateral bonds to various private investors. These investors are usually other banks, investment banks, insurance companies, REITS etc. They either hold them or re-package them and issue to still other institutions here and abroad, keeping a margin for themselves and lending their credit rating to move the bonds.
All of these bonds are built on the foundation of the mortgage itself, so when rumors fly that housing values are dropping and sales are weak and thus the underlying value of the homes that back the mortgages may not cover the mortgage, well everyone starts to worry.
When you worry, you start to check things, like how good were those mortgages? Gee! Roughly a third are sub prime, meaning that no one in their right mind should have lent the money in the first place. SO now we have a real concern. Next up, we find that those loans were set at low teaser rates are are due to be set are higher real rates, another worry. As values fall and people start to realize they cannot pay their loans and cannot sell their house, they wind up in foreclosure, another worry!. The foreclosure rate jumped by 50% this year and next year?
Now most of this info hits wall st. and these sub prime loans are everywhere and because they are part of bundles, no one knows which part and how much. SO none of these bonds can be used as collateral for normal day to day credit financing and commercial paper market comes to a standstill. Now we are in a credit crunch because banks won't even lend to other banks because they don't trust the collateral. Get the picture?
If banks have less money to lend, business has less money to borrow and grow their business. We investors invest based primarily on growth prospects.

Answer 3

Securitization, I think!
Which is the process of creating a financial instrument by combining other financial assets and then marketing them to investors.


A mortgage is a method of using property (real or personal) as security for the performance of an obligation, usually the payment of a debt.

While investment might mean property or another possession acquired for future financial return or benefit.

For example, a mortgage lender would make a house loan, and then use the investment bank to sell bonds to fund the debt, the money from the sale of the bonds can be used to make new loans, while the lender accepts loan payments and passes the payments on to the bondholders. This process is called securitization.

However, lenders have begun to securitize loans themselves[citation needed], especially in the areas of mortgage loans. Because of this, and because of the fear that this will continue, many Investment Banks have focused on becoming lenders themselves[citation needed], making loans with the goal of securitizing them. In fact, in the areas of commercial mortgages, many Investment Banks lend at loss leader interest rates[citation needed] in order to make money securitizing the loans, causing them to be a very popular financing option for commercial property investors and developers

Answer 4

Mortgages are packaged together into fixed income securities and sold to investment funds such as pension funds, and other investment funds. When the bonds do badly, these funds decline

Also, The mortgage issuers and investment banks that issue the bonds also loose asset value, so the total net worth of the company goes down ( write downs in company value). These drive the stock market down, especially in the financial sector. But also the Leverage Buy Out companies (LBOs) such as Blackrock

Answer 5

Mortgages are sold to investors in bunches. They have an inverse relationship to interest rates. So if you buy some when rates are very high then rates go down your investment grows, if you buy a low rate bunch of mortgage your investment goes down in value.
Some homeowners borrow on their home to get money to invest and some don't pay down the mortgage so they have more to invest.

Answer 6

Person A buys a house. They pay for it by getting a mortgage from their bank.

The bank packages up the mortgage and sells it as a security. Person B buys that security and gets the interest paid to them.

The bank now has the money to loan again.

Answer 7

As I understand is the morgages is a form of loan, while invesment is a sort of assets.