As a loan officer, mortgage rates affect every aspect of your business. One of the things that affect mortgage rates the most is mortgage-backed securities, which is why mortgage professionals need to know what it is and how they work in the market. Understanding will help you guide your clients towards more affordable financing at the right time and help them make better decisions.
Mortgage-backed securities (MBS) are bonds secured by real estate loans. They are groups of mortgages packaged into securities to be sold in the secondary mortgage market. These securities are then sold to U.S. government sponsored enterprises such as Ginnie Mae, Fannie Mae and Freddie Mac to be used as guarantees for new securities.
There are a variety of mortgage-backed securities but the two most common are:
Pass-throughs are a device in the form of a trust in which mortgage payments are transferred and distributed through to investors. A collateralized mortgage obligation is a more intricate type of pass-through security. The reason they are more complicated is because they are comprised of several groups of securities rather just one.
Firstly, mortgage companies provide home loans to borrowers. Those loans are then sold by the mortgage company to the aforementioned government sponsored enterprises. The GSE will then package similar loans to create a mortgage-backed security. Finally, the mortgage backed-security will be sold off to corporate or individual investors.
The reason why mortgage-backed securities are an attractive investment is because they offer a return on investment that is higher than government bonds. Mortgage-backed securities provide mortgage lenders with more money to make more mortgage loans. The constant flow of mortgage funds keeps interest rates competitive and makes home financing readily available for borrowers.
If you plan on purchasing a home, you will likely take out a home mortgage. Since your monthly mortgage payment is a combination of four charges bundled into one, it’s essential to understand each element of your overall payment and how it can fluctuate over time. Using the acronym P.I.T.I. can help you remember.
We’re always looking for ways to make purchasing a home more affordable. When interest rates go up and cause higher mortgage costs, some borrowers may feel like they can’t afford to buy a home. If you’re in the market for a new home, know that you do have options!
As homeowners, we’re always on the lookout for ways to save money each month on household costs, from everyday expenses to monthly costs like mortgage payments. One of the ways we might save on monthly mortgage payments is to refinance. A conventional refinance is a strategy of paying off your existing home loan and replacing […]
