ABSTRACT
Whole-loan mortgages are risky as an investment vehicle. They suffer from a severe lack of liquidity, credit risk, prepayment risk, potential underwriting variances, and other hazards. Finding a mechanism to enhance the attractiveness of mortgages as fixed-income possibilities would lower the cost of funds to consumers and better satisfy investors’ requirements. Thus, the mortgage-backed security in its passthrough form was born. Further improvements on this one-class structure will be described in Chapter 6. Since prepayments largely determine the relative value of these securities, what is known about them is thoroughly covered.
