Welcome to Professor Savings.com
We teach finance basics. Hi, I’m you’re host today Rayfil Wong.
Today’s topic, what is mortgage backed securities.
For finance street cred, refer to them as MBS
holler holler. bling bling!
Mortgage backed securities is a type of asset backed security that is secured by a mortgage.
Let me break it down for you in simple terms.
Jane want’s to buy a house for $1,000,000 so she goes to a bank and needs a mortgage home loan
of $800,000 since Jane put $200,000 down payment the bank charges 10% interest on the $800,000 mortgage
the bank would make money from the interest they charge you but the bank must keep this for the loan period, let’s say 25 years.
Then banks had a light bulb moment the bank would sell your interest 10% + the principal to investors
but the banks bundle this in a big pool.
100 mortgage home loans sells to investment banks in the form of a single bond goal for banks is to
free up capital and for investorsto buy in on mortgage United States government sponsored enterprises such as Fannie Mae or Freddie Mac.
This is just a basic view of mortgage backed securities consult your financial advisor for more details.
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