subprime mortgages were chopped up and repackaged as securities? Can someone explain how this process worked?
I mean, I am imaging a guy standing in front of a counter and literally chopping up mortgages and then repackaging them. I just cannot seem to find any inside information about how this process occurs. So an INVESTMENT BANK
buys a bunch of subprime mortgages, right?
And then they are chopped up and somehow and repackaged into securities. What does THAT mean? Thank you.
to maintain capital ratios, the mortgage companies will have to sell those mortgages so they can do new business. if not, the would have to hold them till the term expires, and they can make very few new mortgages. since they are sold, they get cash up front and those mortgages are sold to other investors.
anybody looking for a stream of monthly income will buy those securities. not only investment banks. remember that the monthly income from a 30 year mortgage payment has a present value which can be calculated, and they add lots of mortgages together, and they may be similar or different(chopping) and fit it together and determine a value based on risk.