Question

Discuss the notion of ‘packaging’ a mortgage-backed security.

Answer 1

MORTGAGE BACKED SECURITY

Mortgage backed security is a kind of asset backed security. Here it is like a bond and is made by bundling many home loans bought by the banks which is issued to them. Here the investor got periodic payments for the investment they made. Banks are acting as a mediator in mortgage based security selling between buyer and industry.

Packaging means the wrapping or bottling of products to make them safe. In MBS also packaging is done for the purpose of making the security safe and secure. Mortgages are sold to institutions which then package it into an MBS that can be sold to individual investors. Here the packaging is done for the purpose of making bundled securities together for the selling purpose to the individuals. Bundling is the key factor in the mortgage based security. So packaging is done for this purpose.

ThankYou....