Mortgage Backed Security Analysis

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It is the way to the small regional bank to lend the mortgage to the customers without having the tension that whether the borrower will be able to repay the loan or not. There is a role of bank to act as an intermediary between the investment markets and the homebuyer. This type of security is used to give the principal payments and interest from the pool of mortgage to the shareholders. These types of securities are issues and guaranteed by Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage Corporation (Freddie Mac), Government National Mortgage Association (GNMA), etc. (http://www.sec.gov, 2014). Mortgage Securities are traded in terms of average life rather than the maturity dates like other kind of securities.
Creation of Mortgage Backed Security
The steps involved in creating the mortgage-backed security are as follows. In the first step, the lender of the mortgage extends the loan to the homebuyer. The mortgage is then sold by the lender to the government sponsored enterprises like Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage Corporation (Freddie Mac), Government National Mortgage Association (GNMA), etc. or the private home agency or a bank. The lender services the mortgage as it has to do, and this
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There was an increase in the share of subprime mortgage to total origination from 9% in 1996 to 20% in 2006. In 2006, the total amount of the subprime mortgages was $600 billion which is approximately equals to the one- fifth of the total US home loan market (http://business.cch.com, 2014). The total outstanding of the subprime loans was estimated to be around $1.3 trillion. It states that the lenders were taking

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