Mortgage-backed securities


Also found in: Dictionary, Thesaurus.
Related to Mortgage-backed securities: Stripped Mortgage-Backed Security, Asset-backed securities

Mortgage-backed securities (MBSs)

Securities backed by a pool of mortgage loans.

Mortgage-Backed Security

A derivative whose value is derived from unpaid mortgages. This entitles the owner to a claim on the principal and interest payments on the particular mortgages backing the security. MBSs pay an interest rate that is usually related to the interest rates the homeowners are paying on their mortgages. The equivalent of the coupon on a mortgage-backed security is a percentage of the interest and principal paid on the mortgages backing the security. An obvious risk to an MBS is the possibility that interest rates may decline, causing homeowners to refinance their mortgages. This provides capital to MBS holders, but it comes at a time when purchasing more MBSs would yield less due to the decline in interest rates. More complicated versions of MBSs include the collateralized mortgage obligation and the mortgage derivative. These attempt to reduce the risk associated with declines in interest rates.

Another risk associated with mortgage-backed securities is the possibility that a substantial number of mortgages will default. A main proximate cause of the credit crunch, which began in 2006-2007, was the fact that many mortgage-backed securities backed by subprime mortgages began to default. See also: Credit risk, Liquidity risk, Credit crunch.
References in periodicals archive ?
In his new role as a managing director and head of Commercial Mortgage-Backed Securities (CMBS), Friedman will be based in the firm's New York office and will report to Drew Doscher and Darren Haines, managing directors and co-heads of Fixed Income Credit at BTIG.
over investments in two residential mortgage-backed securities transactions that involved Long Beach Securities Corp.
RBS in January said it had set aside 3.8 billion pounds ($4.95 billion) to resolve civil lawsuits over mortgage-backed securities, investment products packaged and sold before the U.S.
US-based rivals including Bank of America Corporation, JPMorgan Chase & Company and Citigroup have in recent months reached settlements with the US government over charges they misled investors into buying troubled mortgage-backed securities.
Other banks, including JPMorgan Chase, the country's largest bank, have agreed in recent months to pay hefty fines and damages to resolve government claims over mortgage-backed securities.
JPMorgan disclosed in a securities filing that in May it was notified by the civil division of the US Attorney's Office for the Eastern District of California stating that it had preliminarily concluded that the bank "violated certain federal securities laws" in connection with the subprime mortgage-backed securities offered over 2005-2007.
US regulators on Tuesday sued Bank of America for fraud over its sale of $850 million in mortgage-backed securities that cause huge losses for investors.
"When the Fed discusses tapering their purchases of government bonds and mortgage-backed securities, it reflects their views about a growing, stable economy.
Kroll has expanded to cover municipal bonds and residential mortgage-backed securities, but those businesses are not yet profitable, while Kroll expects a 25% profit margin on its work rating commercial mortgage-backed securities by the end of 2013.
Syncora said it was duped into insuring the mortgage-backed securities and that Countrywide misrepresented the quality of the underlying mortgages.
Barclays Plc (LSE: BARC) is expected to place a bid for mortgage-backed securities of the Federal Reserve of New York.
In regards to mortgage-backed securities, nearly 65% of respondents showed support for preventing loan originators from selling off whole portfolios of asset-backed or mortgage-backed securities and, instead, requiring them to hold a minimum proportion of new issues.