Colli Real Estate

Please explain what a Mortgage Backed Security is in plain English please.?

To most people a security is an interest in an existing company, such as owning a share of stock. Income on that share is called a dividend.

A Mortgage-backed security is a one that is really just a bundle of mortgage loans. As the borrowers make their mortgage payments, a paid middle man funnels the money back to the holders of the security in the form of interest and loan amortization.

Banks loved the securities because they could make the loans, but “sell them”–and then loan the money again, “sell them” again and so and so on. Investors thought they loved them because they got great ratings from analysts and didn’t mind if the loans were paid off early.

The problem is, none of the assumptions were realistic.

Banks stopped having skin in the game, so they would loan to anybody, for any reason, nothing down. The banks didn’t care if they made a lousy loan as the loan would be sold and *not* their problem.

The borrowers bought into the idea that the value of houses always goes up and when it came time to sell, they could at a gain. The first $250K of gain would be tax free, so everyone kept telling them, now’s the time to buy. Borrowers didn’t think it mattered that they had nothing to put down…and when they couldn’t make payments, many walked away. Suddenly this meant the loan had to be closed out and the loss recognized–meaning those mortgage-backed securities took a hit.

Meanwhile, the borrowers who did have a chance of keeping their homes if they could renegotiate the loan were hamstrung. To do it, they had to have approval from the people who owned the loans and the mortgage backed securities meant these people were far removed. Getting approval is nearly impossible.

Mortgage-backed securities III

Basics of Mortgage-Backed Securities $104.99 Basics of Mortgage-Backed Securities

Trends in Commercial Mortgage-Backed Securities $189.99 Trends in Commercial Mortgage-Backed Securities

The Handbook of Commercial Mortgage-Backed Securities $143.99 The Handbook of Commercial Mortgage-Backed Securities

The Handbook of Nonagency Mortgage-Backed Securities $119.99 The Handbook of Nonagency Mortgage-Backed Securities

Investing in Commercial Mortgage-Backed Securities $107.99 Investing in Commercial Mortgage-Backed Securities

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