In the financial circle, there are some relatively unpopular content that many people may have never heard of, but if necessary, they should know about it. Recently, some users have been asking us what is the meaning of mortgage-backed securities. Today, let’s briefly talk about the terminology of this term, which is relatively rare in daily life.
The official definition
Mortgage-backed securities, called Mortgage-Backed Security in English, are currently divided into several types:
1. Pass-through MBS means that any cash flow generated by its asset pool is paid directly to investors without a tiered combination.
2. Secured mortgage bonds, whose cash flows are tiered and rearranged, and distributed to investors with different needs.
3. Stripped MBS, which separates the principal and interest of the cash flow and pays them to the corresponding investors separately.
To put it simply, the bank’s residential mortgage loans are directly converted into securities and sold to investors, so that the loans are realized, and new residential mortgage loans are issued. So, banks can move earnings off their balance sheets in this way.
2. Mortgage-backed securities process
1. The bank will conduct screening. If there is a personal housing mortgage loan that meets the qualifying standards, it will be handed over to a trustee, usually a trusted company.
2. The trust company will issue backing securities based on this mortgage asset.
3. The issuance needs to be approved by the China Banking Regulatory Commission and the People’s Bank of China.
4. After the securitization, it will be publicly issued to institutional investors in the inter-bank bond market through China Bond Registration.
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