Structured Finance Products
Structured finance products are a variety of different investments that are used to provide investors with the opportunity to earn income through interest. Some of these investments include mortgage-backed securities, credit default swaps, ETNs, covered mortgage bonds and more.
Mortgage-backed securities
Mortgage-backed securities are structured finance products that represent claims on cash flows from a pool of mortgage loans. They are typically bought and sold on the secondary market. Typical buyers of MBS include investors, corporations, and individuals.
The price of MBS varies depending on prepayment assumptions. These are based on a variety of factors, such as the interest rate, the credit rating, the location of the properties involved, and the economic environment.
If a homeowner does not repay his or her loan, the mortgage-backed security will lose money. But if the borrower is able to repay the mortgage, the investor gains from the payments.
There are two primary types …
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