Pitbull Mortgage - Commercial Hard Money
Mortgage-backed Loans
With the recent credit crisis, there has been a lot of discussion about
mortgage-backed securities, which have said to be a major cause of the crisis. But who
really knows what mortgage-backed securities are? That definition usually is not provided
adequately and clearly, if it is provided at all.
A mortgage-backed security is ?an asset-backed security whose cash flows are backed by the
principal and interest payments of a set of mortgage loans.? In other words, a mortgage-backed
security is an investment that provides returns from the payments made to pay off mortgages.
There are a few types of mortgage-backed securities, including:
- Pass-through mortgage-backed securities
- Collateralized mortgage obligation
- Stripped mortgage-backed securities
Additionally, the first and last of these three types of mortgage-backed
securities can be divided into subclasses.
There are many risks associated with mortgage-backed securities. Some include:
- Unemployment
- Changes in laws
- Home price inflation
- Economic growth (which leads to higher turnover in the housing market)
- Demographic changes
Additionally, there is a credit risk, which hinges upon whether or not the
individual who took out the mortgage can make her payments on time or not.
What has happened in the current credit crisis is that a lot of large banks, such Fannie Mae,
Freddie Mac, and Wachovia, gave out too many risky loans. That is, they allowed high-risk
individuals?individuals who very likely would not have been able to pay off their mortgages? to
take mortgages.
Unfortunately, many people defaulted on their home loans and their homes had to be foreclosed.
In turn, investment banks, such as Goldman Sachs and Lehman Brothers, which invested heavily in
mortgage-backed securities, suffered seriously.
Contact Us
If you would like to find out more information about mortgage-backed securities
or about what hard money can do for you in the current credit crisis, contact the experts at Pitbull
Mortgage School by calling 858-736-7788.
