Mortgage backed securities are essentially a bundle of home loans purchased from lenders at a discount that come in two varieties. The first is a pass through where interest and principal payments from the borrower pass through to the MBS holder or investor. The second is a CMO or collatarized mortgage obligation. CMOs consist of multiple pools of securities which are known as tranches. The tranches are given credit ratings which determine that rates that investors receive. MBSs are issued by Fannie Mae and Freddie Mac and private corporations. At this point in time a huge portion of MBSs are held on the Federal Reserve‘s Balance Sheet. It’s also good to know that MBSs played a pivot role in the 2008 Financial Crisis and the strict legislation and rules on lending practices that were enacted afterwards. I’m Stewart Brown, a licensed Mortgage Loan Originator in Palm Springs, California here to simply topics in Real Estate and Mortgage Lending. Please, like, share, follow and subscribe!
