An Introduction to Mortgage Backed Securities

What Are Mortgage Backed Securities?

Mortgage backed securities are securities that are backed by the principle and interest payments on a group of mortgage loans. Lenders group together mortgages and the money that is repaid by the borrowers’ pays investors in the mortgage backed securities.

Why Do Mortgage Lenders Issue Mortgage Backed Securities?

There are a variety of reasons that lending institutions issue mortgage backed securities rather than holding the mortgage themselves. Most lenders have a limited amount of liquid assets. By selling mortgages they are able to free up money in the short term to make additional loans.

Another reason that mortgage lenders sell off their loans as mortgage backed securities is to minimize their risk. Although every effort is made to establish the creditworthiness of an individual before a loan is made, circumstances can change. If a borrower defaults on his mortgage, the lender will have unplanned for expenses just in dealing with repossession and selling of the property. Adding in the lost principal and interest, and a small, local lender could find themselves in a financial mess very quickly.

When a lender sells a mortgage as a mortgage backed security, they receive their money up front, both the loaned amount and a percentage of the loan as their fee. The investors in a mortgage backed security then receive income each month, as the borrower pays back the principal plus interest on his loan.

Types of Mortgage Backed Securities

There are a variety of mortgage backed securities. The majority of mortgage backed securities are issued by the Government National Mortgage Association, otherwise known as Ginnie Mae, the Federal National Mortgage Association, or Fannie Mae, and the Federal Loan Mortgage Company, or Freddie Mac. These are all groups sponsored by the federal government. While Ginnie Mae is backed by the full faith and credit of the government, and guarantees its investors that they will receive their payments, both Fannie Mae and Freddie Mac have the authority to borrow from the Treasury, which makes them relatively safe investments as well.

In addition to the government agencies, brokerage firms and banks often offer mortgage backed securities. These are known as private-label securities.

Are Mortgage Backed Securities Risky?

Mortgage backed securities are not generally considered a risky investment. To obtain a mortgage, the borrower must go through a qualification process that assures the bank or lending institution that the loan will be paid back. The group who sets up the mortgage backed security will then group mortgages together in order to sell. By pooling the mortgages together, the risk to the investor is minimized. One borrower, who defaults on a loan, or, conversely, pays the loan off early, depriving the group of years of interest payments, will have less of an effect when he is a member of a large group. The same borrow, particularly one who defaults on a mortgage, can cause a real financial shock to a small lending institution.

Do Mortgage Backed Securities Make a Good Investment?

All investment decisions are extremely personal, and will depend on your personal needs. Decisions on investments are best made with help from a financial advisor. For someone who would like a monthly income, a mortgage backed security can make a good choice. A mortgage backed security, particularly one sold by Freddie Mac, Fannie Mae, or Ginnie Mae, can be excellent investment vehicles. In general, the greater the amount of loans held in a mortgage backed security, the safer the investment, because the risk is spread over more people.

Before investing in a mortgage backed security, you should find out your expected rate of return. While this can vary, it is nice to know what investors have been receiving. Remember, it is not only loan defaults that can affect your income from a mortgage backed security, but also prepayments and principal only payments. The income from the security is figured on full payment of both principal and interest over the life of the mortgage, typically 15 or 30 years. Any action taken by anyone holding a mortgage in the security can affect your income. It is important to be clear about this with the person you purchase the security from.

Mortgage backed securities are an excellent development for borrowers, lenders, and investors. No matter what group you are in, it is important to understand exactly how they work and what you can expect. By doing that, you are better able to make a wise financial decision.

Why Should You Have Blue Cross?

About The Blue Cross

Blue Cross was started in 1929 by Justin Ford Kimball, at Baylor University in Dallas, Texas. It was developed to guarantee teachers 21 days of hospital care for $6 a year. Later on the plan was enlarged to other people in the Dallas area and then throughout the country.

In 1939 the term Blue Cross was used to include other plans as well. Blue Cross is a name used by an association of health insurance plans throughout the United States.

It was developed in 1929, by Justin Ford Kimball, at Baylor University in Dallas, Texas. The first plan guaranteed teachers The plan was extended to other employee groups in Dallas, and then nationally. The American Hospital Association (AHA) adopted the Blue Cross symbol in 1939 as the emblem for plans meeting certain standards.

So as it stands today Blue Cross is an independent membership association working on a service basis and providing protection against the costs mainly of hospital care. Benefit payments are made directly to the hospital. Benefits vary among various Blue Cross associations.

And then there is Blue Shield which, rather than covering hospital care, provides protection on a service basis against the cost of surgical and medical care in a limited geographical area.
The actual Blue Cross, which was a blue Greek Cross, was created by the artist Joseph Binder under the auspices of E A van Steenwijk who was the Company secretary of Blue Cross and Blue Shield of Minnesota.

The Blue Cross began now to be used in other parts of the country as well. At present it is a national trade organization linking 40 health insurance companies in the US, Canada and Puerto Rico together.

Supposedly, Blue Cross operations are considered to happen as franchises in specifically designated regions. At present these services are available in every state wihin the United States and every Canadian province

Blue Cross is very prevalent in providing coverage to State as well as Federal government employees and they are also very important in the administration of Social Security. There is a problem with health insurance in the United States.

There is a conflict between the need for the insurance company to make money versus the need of their clients to remain healthy.

This need to make money has become so uncontrolled that one third of the population in the US can not afford medical insurance and medical bills today are the major cause for bankruptcies. This is why state and federal regulation of health insurance companies is necessary.

On the other hand medical insurance companies could hypothetically face unforeseen events such as the chicken flu where a large percentage of their clients all of a sudden face horrendous hospital bills.

Theoretically this could bankrupt the insurance company within a very short timeframe. So to prevent this situation medical insurance companies use a variety of checks and balances to limit payments to beneficiaries.

And of course it is a well-known fact that those seeking health insurance are also those most likely to have medical problems being present or future ones. It is also known that if the cost of healthcare to the beneficiary is very low than the use of medical benefits will be much greater than if the cost is substantial.

So to find the balance where medical services are available when needed but not abused to the extend that for every paper cut you will make a visit to the doctor proper safeguards should be in place.

So in theory, if people would exercise, would eat healthy food, would avoid addictive substances, this would lower health insurance prices because the insurance companies would pay fewer doctor bills.

However, you could then also say that too much of the insurance premiums would be paid out in executive salaries or kept as profits by the company.

Got bad credit!!! Get bad credit secured loan!!!

The way you live your life, it reflects your persona. It shows what type of a person you are, how you think and act. But sometimes your personality varies from your standard of living. This happens when you dont have enough funds to support your living standard. Loans is the first option which comes in your mind at that stage but again something stops you from applying for a loan..and that is bad credit score. To get relieved from financial needs in such situation you can apply for a bad credit secured loan.

A bad credit secured loan is a form of secured personal loans available to following people who gets difficulty in approval of unsecured loans:

Defaulters and arrears
People with bad credit history or poor credit score
CCJs and IVAs
Bankrupts
People with short length of residency or the ones who frequently change their place of living
People with numerous debts

As the loan amount is secured you need not to worry about the approval of the loan if you are having a bad credit score. Your credit score is reflected by a 3 digit figure calculated by credit rating agencies. Your credit score affects the rate of interest on loan amount. Lenders follow a particular table for determining the interest rate which you may get at a particular interest rate. Such tables are easily available on their websites.

You can borrow amounts ranging between ₤5000 to ₤75000, but it is highly recommended to borrow only that much amount, which you can handle or repay afterwards. Borrowing larger amounts can cost you in form of possession of the collateral by the lender.

Bad credit secured loans are loans for every purpose. Some lenders dont even ask for the purpose of the loans. The purpose can be any of the following:

Debt consolidation
Buying property (home or real estate)
Home improvement
Buying car or boat
Health expenses and wedding plans
Children education or holidaying purpose
Miscellaneous personal expenses

To get the best interest rate in the market, you can shop for loans in the market. Studying quotes from various lenders and comparing them can save lot of your money while making repayments. Applying online is the choice of borrower these days as it is simple and convenient form of applying saving your time and energy. There are tools such as debt calculators, repayment calculators, and comparison tools making life easier for you.

Saving for your children

Most of us will face expenses in later life such as university, new car, wedding and first home. If you can afford to start saving for your children, a nest egg in later life can be a huge benefit. Saving just 30 a month for 18 years at an interest rate of 4.5% will amount to almost 10,000.

Bank and Building Society Accounts

Most banks and building societies offer savings accounts specifically designed for children. These savings accounts are open to children of a certain age ranging from birth to 24 years. The interest paid on these savings accounts is often higher than that paid on standard accounts.

Some childrens savings accounts have restrictions as to how many withdrawals can be made without losing interest. How you can access your savings depends on which account you choose. Some may not require notice to be given to withdraw cash; they may be branch-based savings accounts or come with a passbook or cash card.

Some providers also offer regular savings accounts for children that come with restrictions on the maximum and minimum amounts that can be invested each month. They usually have a restriction on the number of withdrawals, which if exceeded can mean a dramatic drop in the rate of interest paid or even that the savings account has to be closed. A certain number of monthly payments also have to be made into these savings accounts each year to prevent loss of interest or closure.

Tax on childrens accounts

Interest on savings is usually taxed at 20% before it is paid. However, children also have a personal tax allowance which stands at 5,035 for the 2006-07-tax year. When opening an account for your children, you can complete a Form R85 for each account to receive interest without tax deducted. Young people aged 16 or over complete this form themselves.

Obviously there is no limit to the amount that you can invest for your children, but be aware that the interest may be taxed if they are under 18 and are unmarried. Parents and step-parents each have a 100 limit on interest earned. This means that if money given produces interest of more than 100 a year, that interest is treated as the income of the parent who gave the money. However, each parent has a 100 limit, so you can receive interest of 200 a year without having to pay tax.

Grandparents or friends and other relatives can give as much money as they like without interest being taxed as their income. Inheritance tax exemptions may mean that tax will not have to be paid on cash gifts given to children but if the provider dies within seven years this may change.

Child Trust Funds

The Child Trust Fund (CTF) is a Government savings scheme that came into effect on 6 April 2005, for children receiving Child Benefit who were born on or after 1 September 2002. Under the initiative the Government provides a minimum of 250 in the form of a voucher, to be presented to one of the Child Trust Fund providers to open a tax-free account on behalf of the child.

Parents, grandparents and friends can make additional deposits, up to a maximum of 1,200 each year.
When the child reaches the age of seven, the Government will donate a further sum, currently proposed at a minimum of 250.
At age 16 the child can begin to make decisions about how the money is managed.
No withdrawals are permitted until the child is 18.
Once the child is 18, the CTF will close and the resulting funds will be made available to him/her.
If an account is not opened before the voucher expires (12 months from issue) HM Revenue & Customs will open a stakeholder CTF account.

National Savings
Childrens Bonus Bonds

With these savings bonds you can invest in your childs name and all returns are tax-free for children and parent. They can be opened for children under the age of 16 and you can invest 25 to 3000 for a five-year period. The interest paid on these savings bonds is fixed.

Index-linked savings certificates

These are tax-free investments where the rate of interest is guaranteed to increase in line with inflation. 100 to 15,000 can be invested in each issue and terms can be either for three or five years.