Hey gang, what is the typical yield range of an MBS equity tranche?
I have only dealt with mbs’s on the curriculum
I got offered an equity tranche on a new mbs at 104% per year, could it legit be that high or am I being scammed?
I bet the interest rate risk is wild on it
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I don’t know what’s typical, but the equity tranche typically offers high interest rates but gets paid only when the other tranches have been paid, so it’s quite possible that you might actually receive nothing.
There must be something setting out the details (term sheet?) and you should read that to find out the details.
This mbs may be new, but if they’ve offered mbs’s in the past, you might inquire as to their payment record. Specifically how the equity tranche has done.
The other issue would be the Fed. If you believe they’re done and interest rates will come down in a year or two, people with high interest rate mortgages will refinance them when rates drop. And again, the term sheet (?) would tell you where the repayments would go.
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