Mortgage Bonds –- the low risk
investment with regular interest income and predictable cash flow.
Amongst all Asset-Backed Securities in the market, Mortgage Bonds are in fact the most
dependable investment options in respect to interest and cash flow patterns. To a greater
extend, Mortgage Bonds provide enormous benefits to governments, developers, banking and
insurance sectors in all aspects. (Refer to “Mortgage Bonds For Banks And Financial
Institutions.”) The success model in the United States demonstrates the ultimate
functionality and effectiveness of Mortgage Bonds to all levels of the property and
financial markets, as well as governmental policies and budgets as a whole.
As a result of enormous investor’s demand
for Asset-Backed Securities, the total volume of outstanding Mortgage-Backed Securities
(MBS) in United States alone at the end of 1999 exceeded US$2.3 trillion, which was one of
the largest financial markets in the world. New issuance of mortgage securities including
pass-throughs and CMOs/REMICs for the year of 1999 amounted to US$900 billion
approximately. In recent years, the growth of the Mortgage-Backed Securities market have
outperformed all other financial sectors such as stocks, Treasury Bills, and fixed-income
securities in terms of ratio and volume, since Mortgage-Backed Securities have
traditionally provided returns that exceed those of most other fixed-income securities of
comparable quality.
Basically, most Mortgage-Backed Securities are
fully amortizing, which offer investors a predictable cash flow and stable rate of return.
The attractiveness of investing into Mortgage Bonds is interpreted mostly by the better
earning performance than bank deposits or money market instruments with less volatility in
price fluctuations or event risk than stocks. Unlike the government-backed mortgage
securities, private-label mortgage securities issued by the banks, financial institutions,
insurance companies and developers tend to vary significantly in terms of credit and asset
qualities, yields and payments, credit enhancements and risk levels, and to the extent of
operational adequacy and maintenance of collateral.
As an
effective measure of earnings performance as well as risks consideration, the quality of
guarantees in respect to structures and market conditions should be considered, given that
there are various risks and other earnings assessments it does not capture and may vary
due to its pre-conditioned nature. These variables might carry potential time-weighted
effects causing additional risks in maturity extension and higher default rates in
mortgage loans. It is important to value a bond’s financial performance
retrospectively rather than prospectively, as there are instances where investment and
market conditions or management’s strategies are expected to alter the earnings
profile of a bond significantly.
A more subtle
view into the predominant natures among various mortgage bonds (MBS) where fundamental
differences and time-weighted variations shift along with certain prevailing market
variables can be obtained from the article of "Mortgage Bonds", please click here to
request for download.
