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 ?
On the other, the GSEs and mortgage-backed securities holders are the largest buyers of derivative protection.
The market for commercial mortgage-backed securities seems to provide an accurate measure of the likely extent of insurance securitization.
This program added six black firms to its 48-member debenture selling group and created a 10-point plan for the firms to underwrite discount notes, long-term debentures and notes, mortgage-backed securities and real estate mortgage investment conduits (REMICs).
Also since 1987, depositories designed to limit settlement risks have begun to immobilize certain mortgage-backed securities and commercial paper, and a clearinghouse has begun multilateral netting of transactions in U.
So, you don't know how long your yield will last with mortgage-backed securities.
Mortgage-backed securities are created by bundling mortgages into a pool and offering (often through a trust) different interests in that pool to different investors.
In addition to rapid growth in residential mortgage-backed securities, recent years have witnessed an explosion in the issuance of securities backed by other assets: credit card receivables, automobile loans, boat loans, commercial real estate loans, home equity loans, student loans, nonperforming loans, and lease receivables.
Being lead underwriter gives us greater access to the mortgage-backed securities market," says PMC Senior Vice President Donna Sims Wilson.
Specifically, the Riegle Community Development and Regulatory Improvement Act of 1994 extends to commercial and multi-family real estate securities the same benefits enjoyed by residential mortgage-backed securities under the Secondary Mortgage Market Enhancement Act (SMMEA).
The credit support was designed to be marketable to investors who typically buy subordinated class of other mortgage-backed securities," Lawch said.