Litigations, Damages And Solutions In Residential Mortgage-Backed Securities
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).
|Date of creation:||09 Mar 2009|
|Date of revision:||30 Jun 2009|
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- 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.).
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