The Mortgage Markets Understanding Mortgage Backed Securities (MBSs) necessitates a basic understanding of mortgages, the mortgage markets and their related terminology. Mortgages are loans generally[…]
Mortgage Backed Securities
Mortgage Backed Securities (MBS) are products that use pools of mortgages as collateral for the issuance of securities in the secondary market and are issued by both private institutions and Government Sponsored Entities (GSEs). The major GSE players in the secondary mortgage market in issuing and guaranteeing MBSs are the Government National Mortgage Association (Ginnie Mae), the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).
The Mortgage Backed Securities (MBS) market is huge–reaching $300 billion in average daily trading by 2006, and estimated total outstanding debt of some $3.12 trillion dollars as of 2007. The essence of MBSs is to take illiquid loans and convert them into tradable securities to provide liquidity to the housing market.
Due to the success of the MBS markets, as of the first quarter 2007, U.S. national homeownership rate was 68.4 percent. The purpose of this collection of articles is to provide an overview of the MBS market, and to highlight some of the recent troubles in the mortgage markets that will likely lead to a new wave of litigation.
To appreciate the subprime mortgage crisis, which will lead to significant litigation over the sale of MBSs, one must review the major events of 2006[…]
Now that we have defined the basics of mortgages and the recent meltdown in the subprime markets, we will examine the secondary market and GSEs.[…]
Prior to the creation of Collateralized Mortgage Obligations by non-agency institutions, the most common structure was primarily accomplished by GSE’s, who would buy loans from[…]
Since 1983, mortgage pass-through securities and mortgages have been securitized as collateralized mortgage obligations (CMOs). While pass-through securities share prepayment risk on a pro rata[…]
The different type of mortgages, periods of maturity, rates of interests, and sizes of pools make it difficult for the average investor to analyze the[…]