Mortgage-backed security

mortgage-backed securitiesmortgage bondmortgage backed securitiesMBSmortgage securitiesmortgage-financial instrumentsmortgage bondsmortgage securitizationMortgage-backed
A mortgage-backed security (MBS) is a type of asset-backed security (an 'instrument') which is secured by a mortgage or collection of mortgages.wikipedia
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Securitization

securitisationsecuritizedsecuritizing
The mortgages are aggregated and sold to a group of individuals (a government agency or investment bank) that securitizes, or packages, the loans together into a security that investors can buy.
Securities backed by mortgage receivables are called mortgage-backed securities (MBS), while those backed by other types of receivables are asset-backed securities (ABS).

Commercial mortgage-backed security

commercial mortgage-backed securitiesCMBScommercial
Bonds securitizing mortgages are usually treated as a separate class, termed residential ; another class is commercial, depending on whether the underlying asset is mortgages owned by borrowers or assets for commercial purposes ranging from office space to multi-dwelling buildings.
Commercial mortgage-backed securities (CMBS) are a type of mortgage-backed security backed by commercial mortgages rather than residential real estate.

Fannie Mae

Federal National Mortgage AssociationFNMAFannie Mae Foundation
In the United States they may be issued by structures set up by government-sponsored enterprises like Fannie Mae or Freddie Mac, or they can be "private-label", issued by structures set up by investment banks.
Founded in 1938 during the Great Depression as part of the New Deal, the corporation's purpose is to expand the secondary mortgage market by securitizing mortgage loans in the form of mortgage-backed securities (MBS), allowing lenders to reinvest their assets into more lending and in effect increasing the number of lenders in the mortgage market by reducing the reliance on locally based savings and loan associations (or "thrifts").

Asset-backed security

asset-backed securitiesABSasset-backed
A mortgage-backed security (MBS) is a type of asset-backed security (an 'instrument') which is secured by a mortgage or collection of mortgages.
In the first case, collateralized debt obligations (cdo, securities backed by debt obligations – often other asset-backed securities) and mortgage-backed securities (mbs, where the assets are mortgages), are subsets, different kinds of asset-backed securities.

Freddie Mac

Federal Home Loan Mortgage CorporationFHLMCFreddie
In the United States they may be issued by structures set up by government-sponsored enterprises like Fannie Mae or Freddie Mac, or they can be "private-label", issued by structures set up by investment banks.
Along with the Federal National Mortgage Association (Fannie Mae), Freddie Mac buys mortgages on the secondary market, pools them, and sells them as a mortgage-backed security to investors on the open market.

Subprime mortgage crisis

2007 subprime mortgage financial crisissubprime crisissub-prime mortgage crisis
These subprime MBSs issued by investment banks were a major issue in the subprime mortgage crisis of 2006–2008. Low-quality mortgage-backed securities backed by subprime mortgages in the United States caused a crisis that played a major role in the 2007–08 global financial crisis.
It was triggered by a large decline in home prices after the collapse of a housing bubble, leading to mortgage delinquencies and foreclosures and the devaluation of housing-related securities.

Collateralized debt obligation

CDOcollateralized debt obligationsCDOs
Other types of MBS include collateralized mortgage obligations (CMOs, often structured as real estate mortgage investment conduits) and collateralized debt obligations (CDOs).
In 1970, the US government-backed mortgage guarantor Ginnie Mae created the first MBS (mortgage-backed security), based on FHA and VA mortgages.

Mike Vranos

The prevalence of mortgage bonds is commonly credited to Mike Vranos.
In 1993, he reportedly earned $15 million from trading mortgage bonds.

Mortgage loan

mortgagemortgagesmortgage loans
A mortgage-backed security (MBS) is a type of asset-backed security (an 'instrument') which is secured by a mortgage or collection of mortgages. A mortgage bond is a bond backed by a pool of mortgages on a real estate asset such as a house.
This is in part because mortgage loan financing relies less on fixed income securitized assets (such as mortgage-backed securities) than in the United States, Denmark, and Germany, and more on retail savings deposits like Australia and Spain.

Real estate mortgage investment conduit

conduitREMIC
An example of a private-label issuer is the real estate mortgage investment conduit (REMIC), a tax-structure entity usually used for CMOs; among other things, a REMIC structure avoids so-called double taxation. The Tax Reform Act of 1986 allowed the creation of the tax-exempt real estate mortgage investment conduit (REMIC) special purpose vehicle for the express purpose of issuing pass-throughs.
REMICs are used for the pooling of mortgage loans and issuance of mortgage-backed securities and have been a key contributor to the success of the mortgage-backed securities market over the past several decades.

Bond (finance)

bondsbondbond issue
A mortgage bond is a bond backed by a pool of mortgages on a real estate asset such as a house.

Prepayment of loan

prepaymentprepayment penaltiesprepayment risk
Since residential mortgage holders in the United States have the option to pay more than the required monthly payment (curtailment) or to pay off the loan in its entirety (prepayment), the monthly cash flow of an MBS is not known in advance, and an MBS therefore presents a risk to investors.
In the case of a mortgage-backed security (MBS), prepayment is perceived as a financial risk—sometimes known as "call risk"—because mortgage loans are often paid off early in order to incur lower interest payments through cheaper refinancing.

Secondary Mortgage Market Enhancement Act

In 1984 the government passed the Secondary Mortgage Market Enhancement Act to improve the marketability of private label pass-throughs, which declared nationally recognized statistical rating organization AA-rated mortgage-backed securities to be legal investments equivalent to Treasury securities and other federal government bonds for federally charted banks (such as federal savings banks and federal savings associations), state-chartered financial institutions (such as depository banks and insurance companies) unless overridden by state law before October 1991 (which 21 states did ), and Department of Labor–regulated pension funds.
The Secondary Mortgage Market Enhancement Act of 1984 (SMMEA) was an Act of Congress intended to improve the marketability of private label mortgage-backed security passthroughs.

Housing and Urban Development Act of 1968

Housing and Urban Development ActHUDNew Town
As part of the Housing and Urban Development Act of 1968, Fannie Mae was split into the current Fannie Mae and Ginnie Mae to support the FHA-insured mortgages, as well as Veterans Administration (VA) and Farmers Home Administration (FmHA) insured mortgages, with the full faith and credit of the US government.
The Act established Ginnie Mae to expand availability of mortgage funds for moderate income families using government-guaranteed mortgage-backed securities.

Financial crisis of 2007–08

financial crisis of 2007–2008global financial crisis2008 financial crisis
Low-quality mortgage-backed securities backed by subprime mortgages in the United States caused a crisis that played a major role in the 2007–08 global financial crisis.
As part of the housing and credit booms, the number of financial agreements called mortgage-backed securities (MBS) and collateralized debt obligations (CDO), which derived their value from mortgage payments and housing prices, greatly increased.

Government National Mortgage Association

Ginnie MaeGNMAGovernment National Mortgage Association (Ginnie Mae)
As part of the Housing and Urban Development Act of 1968, Fannie Mae was split into the current Fannie Mae and Ginnie Mae to support the FHA-insured mortgages, as well as Veterans Administration (VA) and Farmers Home Administration (FmHA) insured mortgages, with the full faith and credit of the US government. Ginnie Mae, a US government-sponsored enterprise backed by the full faith and credit of the US government, guarantees that its investors receive timely payments but buys limited numbers of mortgage notes.
Ginnie Mae guarantees the timely payment of principal and interest payments on residential mortgage-backed security (MBS) instruments to institutional investors worldwide.

Subprime lending

subprimesubprime mortgagesub-prime
Low-quality mortgage-backed securities backed by subprime mortgages in the United States caused a crisis that played a major role in the 2007–08 global financial crisis.
Many subprime loans were packaged into mortgage-backed securities (MBS) and ultimately defaulted, contributing to the financial crisis of 2007–2008.

Mortgage note

notemortgage notesproduce the note
Mortgage notes are traded on the secondary market whole or as part of a mortgage-backed security.

Special-purpose entity

special purpose vehiclespecial purpose entitySPV
The Tax Reform Act of 1986 allowed the creation of the tax-exempt real estate mortgage investment conduit (REMIC) special purpose vehicle for the express purpose of issuing pass-throughs.

Money market fund

money fundmoney market fundsmoney market mutual funds
The securitization of mortgages in the 1970s had the advantage of providing more capital for housing at a time when the demographic bulge of baby boomers created a housing shortage and inflation was undermining a traditional source of housing funding, the savings and loan associations (or thrifts), which were limited to providing uncompetitive 5.75% interest rates on savings accounts and consequently losing savers' money to money market funds.

Nationally recognized statistical rating organization

NRSRO[Nationally Recognized Statistical Rating OrganizationNationally Recognized Statistical Rating Agency (NRSRO)
In 1984 the government passed the Secondary Mortgage Market Enhancement Act to improve the marketability of private label pass-throughs, which declared nationally recognized statistical rating organization AA-rated mortgage-backed securities to be legal investments equivalent to Treasury securities and other federal government bonds for federally charted banks (such as federal savings banks and federal savings associations), state-chartered financial institutions (such as depository banks and insurance companies) unless overridden by state law before October 1991 (which 21 states did ), and Department of Labor–regulated pension funds.
In 1984 the federal government of the United States passed the Secondary Mortgage Market Enhancement Act (SMMEA) to improve the marketability of private-label (non-agency) mortgage-backed securities, which declared NRSRO AA-rated mortgage-backed securities to be legal investments equivalent to Treasury securities and other federal government bonds for federally-charted banks (such as federal savings banks, federal savings associations, etc.), state-chartered financial institutions (such as depository banks and insurance companies) unless overridden by state law by October 1991 (of which 21 states did so), and Department of Labor-regulated pension funds.

Bank of America

Bank of America CorporationBankAmericaBank of America Corp.
In 1960 the government enacted the Real Estate Investment Trust Act to allow the creation of the real estate investment trust (REIT) to encourage real estate investment, and in 1977 Bank of America issued the first private label pass-through.
Its strongest groups include Leveraged Finance, Syndicated Loans, and mortgage-backed securities.

Weighted-average loan age

Weighted Average Loan Age
Another measure often used is the Weighted-average loan age.
The weighted-average loan age (WALA) is measure used in pools of mortgage backed securities that defines the average number of months since the date of note origination of all the loans in a pool weighted by remaining principal balance.

To be announced

TBDTBATBC
TBAs—short for "to-be-announced" securities—involve a special type of trading of mortgage-backed securities.
"TBA" (meaning "to be announced") is also used to describe a specific type of simple mortgage investment, the forward mortgage-backed security.

Option (finance)

optionsoptionstock options
To distinguish the basic MBS bond from other mortgage-backed instruments, the qualifier pass-through is used, in the same way that "vanilla" designates an option with no special features.
For some purposes, e.g., valuation of mortgage backed securities, this can be a big simplification; regardless, the framework is often preferred for models of higher dimension.