Question

What is mortgage backed securities. Assume you have a large amount of money invested in mortgage backed securities. As an investor you are counting on the returns as stated in the contracts . As the investor what are your thoughts on such things as debt forgiveness , missing payments etc.

Answer 1

A mortgage backed security is a debt security collateralised by single mortgage or a set of mortgages.

It is an asset backed security which will be traded in stock markets.

pass-through mortgage-backed security and collateralised mortgage obligation (CMO) are the two types of mortgage backed securities.

When an investor buys a mortgage-backed security, he is investing money. In return, he must get the rights to the value of the mortgage, including interest and principal payments made by the borrower.

As an investor if the company took a decision of debt forgiveness on missing payments will helps him to close the outstnding debts.Tax payers will get more advantage of this as per the Mortgage Fogiveness debt tax relief Act of 2007