Question

Mortgage-backed securities are some of the most complex investment vehicles in the market today. Yet despite this complexity and investor experiences during the Mortgage Crisis, there are more than $9 trillion of outstanding mortgages securitized as of 2015. Discuss the reason for the continued popularity of mortgage-backed securities (MBS) and whether they are a safer investment in today's markets. Provide evidence to support your assertions.

Answer 1

In General MBS are a very good type of security which reduces the overall risk of a bank. Suggesting MBS are high risky is applicable to other securities as well. The financial crisis is started not due to the use of MBS but due to the tampering of it by introducing unsecured mortgaes in MBS, starting CDOs and synthetic CDOs etc. Hence if properly regulated MBOs can act like similar to other debt instruments or stocks.

Also MBS are active due to the Quantitative easing done by the Federal reserve, where Federal reserve is a major player in mBS market. This was done by the US government to support the market during the crisis. The involvement of Federal reserve also provides a creditbility to the market. MBS are also highly regulated and credit worthiness is done more seriously today in USA mortagage market and hence many trust the market.