The use of Mortgage Backed Securities (MBS) has been a significant factor in both the housing market and the broader economy in recent years. This article examines the facts behind the MBS market, providing an overview of the development and structure of MBS, and how they support homeownership by helping to keep interest rates low and enabling financing of rental properties.
Mortgage Backed Securities are packages of individual mortgages that are sold off as investments. They are created when a bank or mortgage lender uses a pool of residential mortgages to issue securities, which are then purchased by investors. As the loans nested in the security are paid off, the investor receives their principal and interest payments. The MBS market is worth several Trillions of dollars and plays an important role in the secondary mortgage market, allowing lenders to manage risk, lower interest rates and offer attractive mortgage products.
MBS activity is also critical for promoting rental markets, as it enables rental housing to be securitized, giving investors the opportunity to purchase bundles of rental mortgages. These rental packages typically contain variable rate mortgages, allowing for changes in interest rate over the life of the loan, reducing volatility and making it easier for landlords to manage risk.
MBS are also used to drive participation in the housing market by offering cashouts to first-time home buyers, allowing them to refinance their mortgages, making it easier to buy a home. Private-label MBS issued by non-bank lenders are also an important factor since these lenders are typically better able to meet the needs of underserved borrowers, such as those with low incomes or bad credit.
This article demonstrates the critical role that MBS plays in helping to facilitate both the housing and rental markets. They allow investors to take on more risk and provide more financing options to borrowers that might not be able to qualify for a conventional mortgage. The MBS market has grown in importance over the years and will continue to play a major role in stabilizing the economy in the years to come.
You can read this full article at: https://www.housingwire.com/articles/opinion-setting-the-record-straight-on-imbs/(subscription required)
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