How do mortgage-backed securities work?

Suppose a bank issues me a mortgage, later bundles that mortgage with others and sell it to an investor (for example, a pension fund or an overseas investor) contained by a mortgage-backed security. How would my monthly payments shutting up in the hand of that investor? Do I make the transmittal to the bank, and the mound then pass it along to the investor? How does it work? I'm just trying to read the process.

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Answers:    Mortgage Backed Securities (MBS) supply investors (such as a pension funds) beside a flow of capital from home owners, through the bank.

Banks are just one of several middle men.

Lets follow the flow of money:

1. Bank give $200,000 to John
The banks know that John will conclusion up paying about $175,000 contained by interest on top of the $200,000 surrounded by a steady stream of payments (about $1250 per month)
2. The Bank sells this stream of income to Company Z for $250,000
4. Company Z sell chunks of this investment to a Pension Fund
5. John pays $1250 next month to The Bank
6. The Bank give this money to Company Z
7. Company Z gives a share of the profits to the Pension Fund

Meanwhile The Bank have written another loan for $200,000 to Mike with the money it received from Company A and the process continues.

This be a simplified version, usually there are several hundred home loans and several middle men adjectives taking their share. By pooling all of these home loans together the MBS's risk is lowered.

Hope this help

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