A case for mark-to-market residential mortgages

Mortgage-backed securities (MBS), also referred to as mortgage pass-through securities, now account for about 42% of the residential mortgage market. This market, however, also has its problems, primarily in the prepayment risk facing investors in fixed-rate MBS. Mark-to-market mortgages (MMM) are r...

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Bibliographic Details
Published in:Real estate issues 1993-04, Vol.18 (1), p.33
Main Author: Hartl, Robert J
Format: Article
Language:English
Subjects:
Book value
Changes
Collateralized mortgage obligations
Cost control
Discounted cash flow
Fixed rates
Homeowners
Housing
Installment payments
Interest rates
Investments
Loans
Mortgage backed securities
Mortgages
Portfolio management
Prepayments
Prices
Real estate
Recommendations
Refinancing
Residences
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Summary:Mortgage-backed securities (MBS), also referred to as mortgage pass-through securities, now account for about 42% of the residential mortgage market. This market, however, also has its problems, primarily in the prepayment risk facing investors in fixed-rate MBS. Mark-to-market mortgages (MMM) are residential home loans that are structured to be continuously and unfailingly payable at market-determined values. Mortgages designed with the mark-to-market feature and MBSs that are made up of such mortgages are free from prepayment risk. They may not eliminate cash flow timing uncertainty, but they will completely correct for cash flow size problems. A subsidiary advantage is the lower transaction costs, as the frequency of prepayments decline due to a lack of incentive by borrowers to prepay voluntarily. At least 3 groups of residential borrowers could benefit from MMM: 1. permanent home buyers, 2. interest rate speculators, and 3. payment-sensitive borrowers.
ISSN:0146-0595