Question

What is a mortgage-backed security? Be sure to explain the process of securitization.

Answer 1

Mortgage backed security is type of asset backed security which is secured by mortagage or collection of mortagage.To understand this we must understand process of securitisation

Let say a bank is giving home loan to customer , now bank want quick realisation so it will form group of such loan and will sell it to another bank/financial institution for lumpsome consideration. now the responsibility of collecting interest will transfer to the buyer of such loans. Now This financial institutions will issue securities out of this loan and will list tem in the market. This securities are called Mortgage backed securities