When it comes to companies that buy houses for cash, mortgage-backed securities are debt securities refinanced by obligations under one or more mortgage payments. Interest payments and the payment of principal on the underlying securities are made from the funds received for providing loans.
Mortgage-backed securities are a form of derivatives that serve as a versatile tool for the refinancing of real estate investment, that is, a means for short-term financial investments in the restoration of the construction of housing units that are purchased on the market by means of a mortgage. The securities maintain the stability of mortgage refinancing of construction due to the fact that the refund is made in the period less than the maturity of the mortgage amount .
Assignment of mortgage-backed securities involves minimizing the risks of failure to return borrowed funds when investing in mortgage construction carried out through the mechanism of securitization. The essence of the mechanism is in the process of securitization of debt conversion associated with refinancing in the paper are of acceptable collateral and relatively high liquidity.
The procedural aspect of securitization involves implementing one of two tactics. In the first case, there is the issue of credit institutions engaged in mortgage loans secured by securities. In the second case, there is a sale of mortgage-debt to investors via a mortgage agent – a specialized commercial organization, which ultimately issues the covered bonds, as it has the right to issue mortgage-backed bonds.
The use of mortgage-backed securities in the process of refinancing the mortgage capital is carried in three ways. The legislation provides a list of banks that provide mortgage loan, mortgage-backed bonds. Finally, the possible assignment of these rights to a claims management company in exchange for mortgage participation certificates.
Despite the different types of mortgage-backed securities, as a rule, the majority of mortgage-backed securities have the following common characteristics: In virtually all cases, the fees paid to the holders of mortgage-backed securities, are periodic. The most common period is monthly, or at least quarterly. Payments from the pool of assets typically consist of two parts: interest (fee for loans) and amortization (repayment of loans). Amortization payments can be scheduled or pre-term, full or partial.
Planned depreciation is the gradual repayment of the balance of the loan in such a way that the end of the term of the mortgage balance is paid off as opposed to corporate bonds.
Early repayment of mortgage-backed securities reflects the fact that in most cases the borrower defaults on the mortgage loan is eligible for a partial or full early payment of the loan, for example , the sale of apartments, part of collateral on the loan.