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Litigations, Damages And Solutions In Residential Mortgage-Backed Securities

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  • Jomadar, Dinesh
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    Abstract

    Mortgage-backed securities (MBS) are debt obligations whose cash flows are backed by the principal and interest payments of pools of mortgage loans, most commonly on residential property (Riddiough, 2001). Lenders establish underwriting guidelines, evaluate prospective homeowners’ credit, and make loans. Having done so, lenders generally hold only a fraction of the loans they make in their own portfolios. Most are sold to the secondary market, where they are pooled and become the underlying assets for residential mortgage-backed securities. Individuals with strong credit qualify for traditional mortgages, whereas those with weak credit histories that include payment delinquencies, and possibly more severe problems such as charge-offs, judgments, and bankruptcies qualify for subprime loans (Hayre, 2001). Securitization is the financial technology that integrates the market for residential mortgages with the capital markets. Investment banks take pools of home loans, carve up the cash flows from those receivables, and convert the cash flows into bonds that are secured by the mortgages. The bonds are variously known as residential mortgage-backed securities (R-MBS) or asset-backed securities (ABS).

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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 29253.

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    Date of creation: 09 Mar 2009
    Date of revision: 30 Jun 2009
    Handle: RePEc:pra:mprapa:29253

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    Related research

    Keywords: Mortgage-backed securities; residential property; mortgage loans; residential mortgage-backed securities; subprime loans; asset-backed securities; Securitization.;

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    1. Wayne Passmore & Shane M. Sherlund & Gillian Burgess, 2005. "The Effect of Housing Government-Sponsored Enterprises on Mortgage Rates," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 33(3), pages 427-463, 09.
    2. Stein, Jeremy C, 1995. "Prices and Trading Volume in the Housing Market: A Model with Down-Payment Effects," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 379-406, May.
    3. Wayne Passmore & Shane M. Sherlund & Gillian Burgess, 2005. "The effect of housing government-sponsored enterprises on mortgage rates," Finance and Economics Discussion Series 2005-06, Board of Governors of the Federal Reserve System (U.S.).
    4. S. Baranzoni & P. Bianchi & L. Lambertini, 2000. "Market Structure," Working Papers 368, Dipartimento Scienze Economiche, Universita' di Bologna.
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