CHAPTER 10
MORTGAGE-BACKED SECTOR OF THE BOND MARKET
I. INTRODUCTION
In this chapter and the next we will discuss securities backed by a pool of loans or receivables—mortgage-backed securities and asset-backed securities. We described these securities briefly in Chapter 3. The mortgage-backed securities sector, simply referred to as the mortgage sector of the bond market, includes securities backed by a pool of mortgage loans. There are securities backed by residential mortgage loans, referred to as residential mortgage-backed securities, and securities backed by commercial loans, referred to as commercial mortgage-backed securities.
In the United States, the securities backed by residential mortgage loans are divided into two sectors: (1) those issued by federal agencies (one federally related institution and two government sponsored enterprises) and (2) those issued by private entities. The former securities are called agency mortgage-backed securities and the latter nonagency mortgage-backed securities.
Securities backed by loans other than traditional residential mortgage loans or commercial mortgage loans and backed by receivables are referred to as asset-backed securities. There is a long and growing list of loans and receivables that have been used as collateral for these securities. Together, mortgage-backed securities and asset-backed securities are referred to as structured financial products.
It is important to understand the classification of these sectors in ...
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