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market risk
Mortgage backed securities, or mortgage derivatives as they are also known, depend on payment of the mortgage. The 2008 problem was caused by sub-prime domestic mortgages (to home-buyers with bad credit records/FICO scores) being pooled and split into tranches which were likely inexplicably give AAA ratings.
The income of such securities is based upon payment of mortgage principal and interest which is normally secure if the credit ratings of those paying them are good. These sub-prime mortgages were believed by investors to be AAA rated.
They were gobbled up by investors and the prices of the securities rose to high levels. When repayments faltered, and investors tried to recover their money, the prices of the securities far outweighed their worth so the market crashed.
So yes, the answer 'Market Risk' is correct -but it is a specific market risk based upon the truth of the credit rating of such securities. Had the correct rating been given, the price of mortgage derivatives at this time may not have reached such heights because the demand would not have been so great.
Mortgage derivatives, or securities, can be a good investment - but only if the underlying structure is not based upon lies and deceit - or perhaps a misunderstanding of how they work.
They were sure part of the beginnings of a worldwide recession - although not the whole cause of it!
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How could one define their mortgage?
One could define their mortgage as the money they loaned using real property as security. That is why mortgage is often refered to as a mortgage loan. Technically if one cannot pay back the mortgage one would risk losing the security, often the house one lives in so it's important to use sound economical advice for one's mortage.
Is a house mortgage a secured debt?
Secured debt is debt backed or secured by collateral to reduce the risk associated with lending, such as a mortgage. If the borrower defaults on repayment, the bank seizes the house, sells it and uses the proceeds to pay back the debt. Assets backing debt or a debt instrument are considered security, which is why unsecured debt is considered a riskier investment find more about PMI services in Florida United Financial Counselors contact with us.
What are the risks associated with the mortgage origination process?
what are the risk associated with mortgage orgination
How do I know if I have Mortgage insurance?
i have mortgage and homeowner insurance and fidc risk insurance
How did mortgage defaults affect banks involved in mortgage lending and mortgage investing?
Non performing mortgage loans hurts a bank's profitability. This should cause a bank to be more prudent when making mortgage loans. In severe cases of defaults, a bank may decide to cease making such loans. To avoid more risk, the bank could find another bank to sell its mortgage portfolio to.
How could one define their mortgage?
One could define their mortgage as the money they loaned using real property as security. That is why mortgage is often refered to as a mortgage loan. Technically if one cannot pay back the mortgage one would risk losing the security, often the house one lives in so it's important to use sound economical advice for one's mortage.
What risk is inherent in second mortgage loans?
the main risk is that the first mortgage will not be paid. if the first mortgage is not paid, goes into default, and is foreclosed, the second mortgage will be determined in the foreclosure sale.
Is a house mortgage a secured debt?
Secured debt is debt backed or secured by collateral to reduce the risk associated with lending, such as a mortgage. If the borrower defaults on repayment, the bank seizes the house, sells it and uses the proceeds to pay back the debt. Assets backing debt or a debt instrument are considered security, which is why unsecured debt is considered a riskier investment find more about PMI services in Florida United Financial Counselors contact with us.
What are the risks associated with the mortgage origination process?
what are the risk associated with mortgage orgination
How do I know if I have Mortgage insurance?
i have mortgage and homeowner insurance and fidc risk insurance
What has the author John A Scowcroft written?
There doesn't appear to be an author named John A Scowcroft who is widely known for writing books.
How did mortgage defaults affect banks involved in mortgage lending and mortgage investing?
Non performing mortgage loans hurts a bank's profitability. This should cause a bank to be more prudent when making mortgage loans. In severe cases of defaults, a bank may decide to cease making such loans. To avoid more risk, the bank could find another bank to sell its mortgage portfolio to.
What is securitization?
Securitization is the process of transforming collateral or obligations into traded securities. An easy way to understand this is through example. The mortgage backed securities market is one of the largest and most liquid in the United States. Through the process of securiization, mortgages are transformed into bond-like securities. Assume a bank has made 100 mortgage loans ranging from $150,000 to $350,000 each to new homeowners this month. The homeowners have agreed to pay interest rates from 6.00% to 6.50% for 30 years on their various mortgages. Instead of holding 100 different mortgage loans of different sizes and coupons, and having risk to the credit of these homeowner on their balance sheet, the bank can use expected cash flows on the mortgages to securitize the mortgages into a mortgage-backed-security (a bond backed by the cash flows of the mortgages). In this case, assume the average loan size was $200,000, and the average interest rate was 6.25%. The 100 loans could be packaged together to create a $20,000,000 security paying 6.25%. Such a security would have a prospectus, which outlined the terms of the bond, and also would get a credit rating. The process of securitization transforms those smaller loans into a larger, more uniform, liquid security. This security could then be sold to an investor, such as a hedge fund, insurance company, mutual fund, or even another bank.
What has the author Francis A Longstaff written?
Francis A. Longstaff is a financial economist who has written extensive research papers and articles on topics such as financial markets, risk management, and asset pricing. Some of his notable works include research on derivatives pricing and financial modeling.
What does it meant to be a mortgage underwriter?
To be a mortgage underwriter means that one determines if the risk of lending money to an individual is acceptable. Today, mortgage underwriter and banks use computer models to help determine this risk.
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What are the advantages of CMBS loans?
Commercial Mortgage Backed Securities (CMBS) loans collect mortgage loans into a pool and transfer them to a trust, the bonds of which are sold to investors. The benefits for borrowers include access to larger loans at lower rates. The benefits for bond investors include decreased investing risk and previously unavailable investment options.
