Cryptocurrency Q&A
How do MBS make money?
How do MBS make money?
MysticGalaxy
Wed Sep 18 2024
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7 answers
1719
Could you elaborate on the mechanisms through which Mortgage-Backed Securities (MBS) generate revenue? Are they primarily reliant on interest payments from the underlying mortgages, or do they also derive income from other sources? How does the creditworthiness of the borrowers impact the profitability of MBS? Additionally, what role does the secondary market play in determining the value and profitability of these securities? Lastly, are there any inherent risks associated with MBS that investors should be aware of when assessing their potential returns?
7 answers
Caterina
Fri Sep 20 2024
Pass-through Mortgage-Backed Securities (MBS) are a type of financial instrument that allows investors to participate in the mortgage market without directly owning individual mortgages. In this structure, the issuer pools together a group of mortgages and issues bonds to investors.
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Nicolo
Fri Sep 20 2024
The issuer of a pass-through MBS collects monthly payments from the borrowers of the underlying mortgages. These payments consist of both principal and interest.
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ShintoMystical
Fri Sep 20 2024
The collected principal and interest are then distributed to the bondholders of the pass-through MBS in proportion to their ownership of the bonds.
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Caterina
Fri Sep 20 2024
This distribution process is designed to be "pass-through," meaning that the bondholders receive the same proportionate share of the collected payments as the issuer.
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Alessandra
Thu Sep 19 2024
A key characteristic of pass-through MBS is that they generate cash Flow through three primary sources: scheduled principal payments, scheduled interest payments, and any prepayments made by the borrowers.
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