Similar to bonds, these securities are backed by a share in a pool of home mortgages insured under the National Housing Act. The securities pay interest and a part of the principal each month and, if home owners prepay their mortgages, may pay out additional amounts of principal before normal maturity. They trade in the bond market at prices reflecting current interest rates.

MBS's are sold into the open market by many of the big name investment firms. Most people who invest in MBS's are big name institutions because the minimum requirement may be quite high.

Barry Habib's theory is that the real driving force behind interest rates is Mortgage Backed Securities, not the 10-year US Treasury Note...

Most mortgages are packaged together and sold as securities. This is why standardized documentation is required for all loans in certain documentation categories. The ability to standardize documentation for a large pool of loans means lower interest rates for consumers in the long run, as investors will pay premiums for standardized loans.

Most large investment banks play an integral role in developing loan products which can be pooled together. This in turn allows your mortgage professional to offer a variety of financing options.

 

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