Source of payment for securtized bond

CFA Level I Fixed Income
#1

Hi everyone,

Please help me to understand how the mortgage asset under securtized bond generate cash flow for coupons and repayment.

Like in case of mortgage backed securities I am not able to understand how the pool of mortgage assets generate cash flow for repayment.

For example if i took loan from bank based on my home as a collateral in which at present I am leaving then how come pool of loans purchased by let say some quasi govt company will able to generate cash flow?

Or should I consider it as CF by selling property of deafaulter loan payee from the pool.

Thanks

#2

The homeowners pay their monthly payments (principle and interest) to the loan servicer. The loan servicer skims their fee off the top, then divvies up the cash it received amongst the bondholders. For a passthrough MBS, each bondholder receives the same amount of cash, some interest, some principle. For more complicated mortgage-backed structures (POs and IOs, CMOs), the cash is divided according to more complicated formulae.

#3

Thanks I got your point.

I edit my question please tell if I am right or wrong in my understanding?

Thanks

#4

If some organization purchases your loan, you will make your monthly payments to that organization, directly or indirectly. That organization will then skim off its fee, then pay the bondholders from the remaining cash.

#5

Ok thanks

#6

You’re welcome.