Chapter 1
Mortgage-Backed Securities
Origins of the Market
Mortgage-backed securities have an array of cash-flow profiles and risk profiles. The most basic mortgage-backed security is the pass-through security. As its name indicates, a pass-through simply passes to investors the payments associated with a pool of amortizing mortgages. The pass-through is the basic building block of the mortgage-backed securities (MBS) market. In this chapter we will describe the process of securitization, the output of the process, and the market for the output: mortgage-backed securities. The MBS market in the United States was kick-started and has been sustained by the activities of Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC). The first MBS ...
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