Depository institutions and banks that hold loans before sale. Trusts and custodians that hold the legal title to the mortgage pool.
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Prepayment risk, where faster than expected paydowns shorten the expected cash flow timeline. Pass-Through Securities and Collateralized Mortgage Obligations Pass-through securities allow investors to receive a pro-rata share of principal and interest payments from the underlying mortgage pool.
In contrast, non-agency securities are created by private institutions and carry higher risk premiums, reflecting the credit quality of the underlying loans and the absence of a government guarantee. By pooling these mortgages, originators transform illiquid debt into tradeable securities, creating a market for credit and interest rate risk.
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The resulting investment product distributes cash flows from borrower payments across a wide range of tranches, each with distinct risk and return profiles. Types of Mortgage Backed Securities Structures Not all mortgage backed securities are identical, and the structure determines how risk and reward are distributed.
More About What is a mortgage backed security
Looking at What is a mortgage backed security from another angle can help expand the discussion and give readers a second clear paragraph under the same section.
More perspective on What is a mortgage backed security can make the topic easier to follow by connecting earlier points with a few simple takeaways.
