Skip to main content

MBS - Mortgage Backed Securities

Securitisation is a process of liquidizing the assets held with financial institutions. If there are many auto loans given by a bank and instead of raising money through deposits and giving further loans, Banks can also do the following to increase its profits.

- Bundle all the auto loans and form a security.
- Raise the money through prospective clients with the help of other financial institutions.

The risk lies with the bank and this gives more liquidity to the bank and the money generated through this process can be availed in giving further loans.

In India, Securitisation has been there for long. Please visit this site for more details.

Consider the Home loans now. Banks have done the due diligence and have approved home loans for 20 people for 1 crore. The mortgage would be the home for the bank.

Now, If I am a person A thinking having very less money but ready to lend money for a prospective buyer who buys home and wants my part of interest back. Say, I have only Rs. 20000/- and want the interest for that alone to come to me.

Banks think, my whole 20 crores is locked up in the home loans. I also want the liquidity. This way, Investment banks created a security out of the mortgages in the bank and sold in the market and people like Person A bought it. The things that are not bought will remain with bank and investment bank. This gives more returns than FD and Person A is happy in taking the risk. Bank is happy in getting more money and Investment bank is happy on making its commission on forming the product.
Labels:

Comments

Post a Comment

Popular posts from this blog

Nokia E51 WLAN Settings

Nokia E51 is a smart phone with almost all the features available in it. It looks really slim and comes in three colors. It has loads of features and highlight of them all is the connection through the Internet through WLAN. You can get a Internet connection from the service provider and ask for the wi-fi router. With the wi-fi router, you can connect to the Internet through various other devices like Laptop, Nokia E51 etc., You will be provided with the password for the WLAN connection and only if you enter the password correctly you will be connected to the Internet through that WLAN. As you may expect, this password will be asked only when you connect to Internet through this WLAN for the very first time. In Laptop/Computer, you have Network settings to identify and modify the settings if wrongly entered. But this is somewhat tricky in case of Nokia E51! In Nokia E51, You have the option of Browse WLAN right at the home page for you. If you have customized for something different, u
10 comments
Read more

Internet not working on laptop - what should you do?

 When the internet is not working, consider looking at the available networks and see if you can switch to any other internet that would work Further, troubleshoot by restarting the modem and the laptop once to make sure there are no issues with either of them. If none of those works, consider contacting your interest service provider to help troubleshoot.
Post a Comment
Read more

Treasury bonds Vs high yield savings

 You have some additional cash and are looking for the best place to park to get more money from it? If you answered yes, couple of options that you might be considering could be 1. Treasury bonds 2. High yield savings with bank fixed deposits This is especially in United States.  First let’s look at the commonalities: 1. Both are absolutely safe and assured 2. The capital preservation is assured Now, let’s look at when we should look for which one 1. If you could need this money anytime soon (within the next six months to a year or lesser), great option is to choose high yield savings. One option to consider is PayPal savings (which offer 4%+ APY these days.  2. If you don’t need it immediately and consider ways to get the maximum amount in an assured way, you can consider 15 month fixed deposit in certain banks, which offer over 4.65% APY for 15 months. 3. If you think the inflation is going to remain high and want to save with the government, you can choose the treasury bonds as an
Post a Comment
Read more