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Litigations, Damages And Solutions In Residential Mortgage-Backed Securities

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  • Jomadar, Dinesh

Abstract

Mortgage-backed securities (MBS) are debt obligations whose cash flows are backed by the principal and interest payments of pools of mortgage loans, most commonly on residential property (Riddiough, 2001). Lenders establish underwriting guidelines, evaluate prospective homeowners’ credit, and make loans. Having done so, lenders generally hold only a fraction of the loans they make in their own portfolios. Most are sold to the secondary market, where they are pooled and become the underlying assets for residential mortgage-backed securities. Individuals with strong credit qualify for traditional mortgages, whereas those with weak credit histories that include payment delinquencies, and possibly more severe problems such as charge-offs, judgments, and bankruptcies qualify for subprime loans (Hayre, 2001). Securitization is the financial technology that integrates the market for residential mortgages with the capital markets. Investment banks take pools of home loans, carve up the cash flows from those receivables, and convert the cash flows into bonds that are secured by the mortgages. The bonds are variously known as residential mortgage-backed securities (R-MBS) or asset-backed securities (ABS).

Suggested Citation

  • Jomadar, Dinesh, 2009. "Litigations, Damages And Solutions In Residential Mortgage-Backed Securities," MPRA Paper 29253, University Library of Munich, Germany, revised 30 Jun 2009.
    • Handle: RePEc:pra:mprapa:29253
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    References listed on IDEAS

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    More about this item

    Keywords

    Mortgage-backed securities; residential property; mortgage loans; residential mortgage-backed securities; subprime loans; asset-backed securities; Securitization.;
    All these keywords.

    JEL classification:

    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • G3 - Financial Economics - - Corporate Finance and Governance
    • D1 - Microeconomics - - Household Behavior
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G2 - Financial Economics - - Financial Institutions and Services
    • F3 - International Economics - - International Finance
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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