Mortgage-backed Securities is home mortgage credited from the banks. It is similar to bond investment because investor obtains payments alike to bond coupon payments. In Mortgage-backed Securities, the bank act as a middleman between the investment industry and homebuyer. Bank grant home loan payment to its customers and then sell them on reduction for inclusion in a mortgage-backed security.
There are two leading types of mortgage-backed securities, collateralized mortgage obligations and pass-throughs. The collateralized mortgage obligations comprise of numerous securities pools known as tranches or slices. The tranches or slices are given credit assessment which regulates the rates that are repaid to the investor.
Pass-throughs act as trust through which loan payments are collected and passed to investors. Typically they have maturities of five, fifteen or thirty years. The life of pass-throughs may be less than the date of maturity because it is determined by the principal payment of a loan that makes up the pass-throughs.
The mortgage-backed securities played an essential role in 2007 financial crisis that wipes out trillions of dollars, roil the world financial market and bring down Lehman Brothers. It seems inevitable that the growing demand for mortgage-backed securities and an increase in home prices encourage the banks to decrease lending rates and initiate the investors to jump into the home market at any cost.