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What is the problem in stretching out the maturity of marketable securities?
Wiki User
∙ 13y ago
there is greater possibility of loss.
Wiki User
∙ 13y ago
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Mortgage-Backed Securities?
Homeownership, the American dream shared by many, would hardly be possible without mortgages. So if we assume that most people in the U.S. will own a home at one point or another there’s a lot of money to be lent and a lot of money to be made by the banks and institutions that write and service these mortgages. As an investor, you may wish to tap into this market as well. The good news is that you can do just that through the use of mortgage-backed securities. Mortgage-Backed Securities (MBS for short) are essentially bonds that are created by pooling together a lot of home mortgages, securitizing them, and selling them to individual and institutional investors. When you invest in MBS you’re essentially buying an interest in a pool of residential mortgages. When homeowners make their mortgage payments every month a portion of their payments are returned to you, as an investor in the MBS, in the form of interest and principal. One of the main risks associated with MBS investment is that of prepayment. You anticipate the maturity of the securities based on the maturity of the underlying mortgages. If it’s a brand new security built around brand new 30-year mortgages, for instance, you’d assume a maturity of 30 years. The problem is that many homeowners do not pay down their mortgages exactly according to the amortization schedule assumed at the time of underwriting. People pay off early, whether due to selling the house, a refinancing, or simply the desire to own the home outright. These prepayments can be very difficult to predict and the extent to which they’ll affect your investment is unsure to say the least. There have been many attempts made to try to quantify and gauge the amount of prepayment risk at any given time, based on the current economic and interest rate environments. But these variables remain very unpredictable over the long run. In my next post, I’ll discuss three different types of MBS investments and tell you a way that you can at least mitigate some of that prepayment risk.
What are the risk involved in mortgage backed security?
market riskMortgage 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!
What is subprime crises?
The Subprime Crisis is an economic problem that happened in the United States. It cannot be explained in a paragraph or so. In short, it happened due to uncontrolled lending in the US Financial Markets. Some of the reasons for this crisis are: 1. The US Real estate market crash 2. High default rates on Subprime loans & 3. Subprime Mortgage backed securities
What was subprime mortgage crisis of America?
The Subprime Crisis is an economic problem that happened in the United States. It cannot be explained in a paragraph or so. In short, it happened due to uncontrolled lending in the US Financial Markets. Some of the reasons for this crisis are: 1. The US Real estate market crash 2. High default rates on Subprime loans & 3. Subprime Mortgage backed securities
What does problem-statement mean?
problem statement means to make a problem for your statement
The problem in stretching out the maturity of marketable securities is?
there is greater possibility of loss.
Why would a person hire a securities attorney?
A person would hire a securities attorney to protect oneself or company from scandals, illegal funding, or illegal trading. One should not wait until there is a problem before contacting a securities attorney. They are there to help prevent a problem from happening.
How do you stretch a coyote?
Stretching it isn't the problem, detaining it is an entirely different story.
Why maturity problem is arising in basil international limited?
How car bonnet, international pineapple kettle.
What is meant by curing title?
this means there are problems with a title preventing it from being marketable to add additional proof of ownership negating those problems would cure the problem
What are the challenges to making a full-sized electricity operated car?
It's been done already. The biggest problem with making it a marketable venture is limitations on battery life.
Why is seeking advice considered a sign of maturity?
Seeking advice is considered a sign of maturity because it shows a willingness to learn from others, humility in admitting limitations, and a proactive approach to problem-solving. It demonstrates self-awareness and a recognition that one person may not have all the answers.
What legal problem with the deal worried?
no specific authority had been given by the constitution to buy land, and he had always opposed stretching the language of the constitution.
What legal problem with the deal worried Jefferson?
no specific authority had been given by the constitution to buy land, and he had always opposed stretching the language of the constitution.
What are functions and features of CMMI?
The functions and features of CMMI are to insure there are no bad blocks of memory. CMMI helps to solve the maturity problem of software within a organization.
Why there is a problem in making the movie of Breaking Dawn?
I believe it is because of Bella`s daughter ,Nessie.How do you find a girl who can reach maturity/adulthood in 7 years?
What is the psychosocial problem of 'Flowers for Algernon'?
As Charlie's intelligence grows, his emotional maturity lags behind, and past events in his life that he had previously forgot are shown to still control him.
