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Chapter 2: Q.7 (page 97)

What is the difference between a mortgage and a mortgage-backed security?

Short Answer

Expert verified

Mortgage backed securities are more safe for investors than mortgage.

Step by step solution

01

Step 1. Introduction

As the name suggests, the securities backed by mortgages are known as mortgage-backed securities or MBS. It is an investment that is created by a bundle of mortgages. These mortgages are sold by banks which issued them.

02

Step 2. Explanation

The lender gets to keep the house or property as collateral in the case of a mortgage. Mortgage-backed securities, on the other hand, provide investors with a safe investment while also allowing the original mortgage lenders to raise capital to lend to potential homeowners.

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Give at least three examples of a situation in which financial markets allow consumers to better time their purchases.

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Go to the St. Louis Federal Reserve FRED database, and find data on federal debt held by the Federal Reserve (FDHBFRBN), by private investors (FDHBPIN), and by international and foreign investors (FDHBFIN). Using these series, calculate the total amount held and the percentage held in each of the three categories for the most recent quarter available. Repeat for the first quarter of 2000, and compare the results.

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