What Is Mortgage Securitization?

Mortgage securitization refers to the mortgagee who mortgages real estate, and issues various bonds or mortgage certificates with the mortgage as security. Divided into institutional mortgage securities and non-institutional mortgage securities, referring to mortgage securities issued by three institutions with a federal government background.

Mortgage securitization

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According to the nature of mortgage securities, mortgage securities are generally divided into: mortgage transfer securities, mortgage-backed bonds, mortgage payment bonds, secured mortgage deeds, and derivative securities (Derivative securities). The first type of security is the transfer of mortgage, which is a type of warrant, and the remaining types are bonds.

Mortgage pass-through securities (MPTs --- Mortgage pass-through securities)

Mortgage transfer securities are the more popular mortgage securities, and they are also the earliest and simplest variety of mortgage securities. Because it was first created by the National Government Mortgage Association of the United States in 1968, the name "mortgage transfer securities MPTS" has become a special term for GNMA securities. In 1970, the Federal National Mortgage Association and the Federal Housing Mortgage Corporation introduced their respective mortgage transfer securities. At the same time, they are also called "mortgage-backed scurities (MBS)" and "participation certificate (PS)."

The characteristic of this kind of securities is that the property rights of the mortgage collection are passed to the securities holders, and the securities shares represent the equity shares of the securities holders for the mortgage rights in the mortgage collections. Prior to the issuance of securities, the property rights of the mortgage collection belonged to the issuer. After the securities were issued, the mortgage collection was regarded as a property, and its property rights were jointly owned by all securities holders. The issuer is only the operator of this property, is responsible for the management and service of the mortgage collection, and is subject to the supervision of all warrant holders (usually entrusting a trust institution as a regulatory agency to manage the issuer on behalf of all securities holders Supervision).

The meaning of the resale of the transferee securities has two levels: one is the transfer of property rights to investors, and the other is that after the funds for each period of principal and interest flows into the mortgage collection, the manager immediately deducts the management service fee and other prescribed expenses and then transfers to Holders of securities.

MBB --- Mortgage-backed bonds

Mortgage-backed bonds are bonds that are issued as a security for a collection of mortgages. Mortgage-backed bonds, like other government bonds and corporate bonds, embody the debt and debt relationship between issuers and bondholders. Mortgage collection is only used as a property guarantee for issuing bonds, and its property rights still belong to the issuer. After the bond issuance, the mortgage collection is generally placed under the trustee's custody, and the trustee ensures that the issued bonds are guaranteed by the mortgage of the mortgage collection. Mortgage-backed bonds are usually issued with a coupon, interest is paid regularly, and the principal is returned once due.

In order to ensure that the issuer's cash flow from the mortgage collection is sufficient to pay the bond investors' interest and principal due, the issuer must use an excess mortgage collection to guarantee bond issuance. Generally, the total amount of mortgage in the mortgage collection is a bond. 125% to 240% of the total issuance, so that bondholders' income can be guaranteed even if there are some bad debts or defaulted loans. When some of the mortgages in the mortgage collection have bad debts, arrears, etc., and the property value of the mortgage collection is lower than the requirements of the original issuance of securities, the issuer must supplement the new mortgage rights, otherwise the custodian has the right to sell the mortgage collection. Protect the interests of bondholders.

Mortgage-backed bonds are mainly commercial mortgage securities CMBS. Because mortgage-backed bonds have no government guarantee, they are generally rated by professional rating companies (such as Moody, Standard & Poor's S & amp; P and other well-known international rating companies).

Mortgage Pay-Through Bonds (MPTB)

Mortgage payment bonds are a hybrid of mortgage resale securities and mortgage-backed bonds, and are a type of security that combines the advantages of mortgage resale securities and mortgage-backed bonds. It is a kind of bond like mortgage-backed bonds, which reflects the debtor's rights and debt relationship between the issuer and the holder. The holder has no property rights in the collateral collection that guarantees the issuance of the bonds, but it also absorbs the cash flow characteristics of the mortgage resale securities It is required that the funds flowing into the mortgage collection (the mortgage principal and interest repaid by the borrower in each period) shall be transferred to the bond holders, and the principal repaid by the borrower in advance shall also be transferred to the bond holders. Mortgage-backed bonds have different principals before maturity. The principal and interest of such bonds may be paid in advance by the mortgage borrower to pay off the loan in advance.

The collection of collateral issued by secured mortgage payment bonds is residential mortgage. Because of FHA insurance and VA guarantee or private insurance company insurance, the security of the securities is relatively high. But even so, in order to increase credit and reduce risk, issuers are generally required to use excess collateral to secure bond issuance. The excess is smaller than mortgage-backed bonds, or government bonds are used as additional guarantees.

Collateralized Mortgage Obligations (CMO)

A guaranteed mortgage contract is a variant of a mortgage payment bond. It is also a bond, and it also uses the mortgage collection as a property guarantee for the bond issue. The principal and interest flowing into the mortgage collection must also flow out to the bond holder. The main difference between this kind of securities and the above three kinds of securities is that the secured mortgage contract is issued in multiple levels, that is, the same mortgage set is used as the guarantee, and securities of different terms and different interest rates are issued at the same time for different investors to choose , Different grades of securities have different priorities in terms of debt service. For example, an issuer uses a 10-year fixed-rate mortgage collection with an interest rate of 11% as a property guarantee, and issues a secured mortgage contract, with A-level securities accounting for 30%, and the term is about 2-5 years (actually depends on the borrower's Repayment situation, whether there is an early repayment phenomenon), interest rate is 9%, B-grade securities account for 30%, the term is 4-7 years, the interest rate is 10%, C-grade securities account for 40%, the term of 6-10 years, The interest rate is 11%. According to the regulations, each time the principal and interest of the repayment received from the borrower are paid for Class A securities, the principal and interest of Class A securities are paid off, and then the Class B securities are paid in turn. Class C securities.

This kind of securities is the most complicated type of mortgage securities. When an issuer issues this kind of securities, the number of securities levels and the choice of repayment methods are various. Investors often need to use the opinions of professional investment consultants to determine the investment. select. The main purpose of designing such securities is to meet the needs of different investors. High-grade securities have low risk of bad debts, and low-grade securities are conducive to avoiding the impact caused by borrowers paying off loans in advance.

Traditional resale mortgage securities are often unattractive to financial institutions such as banks for short-term investments because of their long repayment periods, and because of the risk of early repayment, they attract institutional investors such as pensions for long-term investments. Force is also limited. After the launch of CMO, it has become the main variety of mortgage securities because it caters to the needs of different investors.