Mortgage-Backed Securities FAQs
Here are some common questions that come up when discussing MBS.
Is there any risk to me as a homeowner if my home loan is bundled into a mortgage-backed security and sold?
Your loan terms should stay the same whether the lender keeps your mortgage or it gets sold and bundled as part of a mortgage-backed security. If you fail to make payments on your loan, you risk foreclosure regardless of who currently owns your loan.
How do I invest in mortgage-backed securities?
Exchange-traded funds and mutual funds are the primary ways to invest in MBS as an individual. You can either purchase a fund through the company that created it or open your own brokerage account. (This will also allow you to purchase stocks.) Opening a brokerage account is similar to opening a bank account.
Do MBS affect mortgage rates?
Yes, the MBS market does impact mortgage rates. When the price of MBS are higher, mortgage rates tend to decrease. When the cost of MBS is low, mortgage rates tend to increase. MBS also increase the liquidity in the marketplace, allowing for more mortgages to be issued.
Does the Federal Reserve buy mortgage-backed securities?
Yes. They’re one of the largest investors in MBS. Recently, however, the Fed has made the decision to slowly exit the MBS market by halting its continual purchasing of bonds.
The purchase of these MBS helped keep mortgage rates low, which provided an economic boost because housing accounts for a significant share of the money pumped into the economy. However, cheaper financing meant higher home prices – something that is, at this point, actually detrimental. By halting its purchase of MBS, the Fed hopes to combat inflation.
