What are mortgage-backed securities, why were they developed, what types of mortgage backed securities are there,...

What are mortgage-backed securities, why were they developed, what types of mortgage backed securities are there, and how do they work?

Expert Solution

Mortgage back securities are asset based securities which are provided against any loan amount as a security.Mortgage backed securities were developed to provide funds to the borrower and by selleing such securities at discount it provide funds to the lender.Mortgage back securities are developed for the purpose of providing funding to both lender and borrower and also acts as a mode of investment for the persons buying these securities from bank.In simple language we can say that bank acts as a middleman between the homebuyer and investment industry.The mortgage grant by bank sold to investors at a discount to raise funds in this way it works.

There are two types of mortgage based securities .

I) Pass throughs :- In this a trust is created in which all payments of mortgages are collected by trust and they will pay the investor the amount collected as pass through.Its life can be less than than stated maturity as it depends upon the payments of mortgages.

II) Collateralized Mortgage obligations :- It consist of multiple mortgage securities as a pool which is known as tranches.Based on credit rating allocated to the trances the rate of return of investors are determined.

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a. What are the pros and cons of asset-backed securities such as mortgage-backed securities to the...

a. What are the pros and cons of asset-backed securities such as mortgage-backed securities to the retail or institutional investors? b. What are the roles played by various financial institution(s)? c. Mutual funds have been gaining popularity among investors. From the investors’ point of view, illustrate why it is usually a better choice to buy the mutual funds than to buy asset-backed securities.

How do mortgage backed securities work? Why did banks think that selling mortgage backed securities would...

How do mortgage backed securities work? Why did banks think that selling mortgage backed securities would relieve them of the risks involved with mortgage lending? How did the banks indirectly come to once again be exposed to mortgage lending risk? What happened to bank reserves during the mortgage debt crisis? How did the Federal Reserve respond; and, in hindsight, do you consider the Fed's response to be appropriate and corrective? Explain why or why not?

Which policy decisions were enacted that led to the crisis? What are mortgage-backed securities?

Consider the GFC of 2008 a/ Why were mortgage backed securities (MBS) considered toxic. Explain your...

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explain the general difference(s) between residential mortgage-backed securities (RMBS) and commercial mortgage-backed securities with respect to...

explain the general difference(s) between residential mortgage-backed securities (RMBS) and commercial mortgage-backed securities with respect to the underlying collateral (physical real estate, not the loans).

What is mortgage backed securities? Explain the role of banks here.

The mortgage backed securities issued by Freddie and Fannie are fully backed by the Federal government.

Mortgage-backed securities were created when ________ began buying mortgage loans from originators and bundling them into...

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What are the differences between mortgage and mortgage-backed securities? Can moral hazards still exist if there...

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You are a mortgage-backed securities investor with a broad portfolio of bonds backed by home mortgages....

You are a mortgage-backed securities investor with a broad portfolio of bonds backed by home mortgages. In recent times, interest rates have fallen drastically, and as a result many homeowners have begun to refinance their mortgages. What does this refinancing "wave" do for your expected returns? The best answers will be in terms of both reinvestment risk and the convexity properties of mortgage backed securities.

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