Mortgage-backed securities are making a comeback
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STEVE CHIOTAKIS: As for investors, they seem to be getting in on the recovery spirit too. More of them are buying securities. It was mortgage-backed securities, you’ll remember, that poisoned a lot of bank balance sheets when they went sour. That helped spark the financial crisis, and then nobody bought securities anymore. But that’s changing.
Anusha Shrivastava reports on credit markets for Dow Jones Newswires. Good morning.
ANUSHA SHRIVASTAVA: Good morning.
CHIOTAKIS: Remind us a little bit about what a security is. What are we talking about here?
SHRIVASTAVA: These bonds that are backed by loans that people take out on, say cars, or they could be for education, they could be for houses, they could be for commercial property. So if you buy a car, and you take a loan for it, all the loans are bundled together and sold as a bond or a security to an investor.
CHIOTAKIS: Isn’t that what got us into so much trouble in the first place a few years back?
SHRIVASTAVA: Yes but those were bonds that were backed by loans for houses, those are for mortgages — like residential mortgages. These are bonds that are backed either by commercial property or for consumer stuff like cars and equipment, credit card debt. These are not the bonds that got us into trouble.
CHIOTAKIS: Now why is this market coming back now, Anusha?
SHRIVASTAVA: It’s simple. If you have the collateral, which is if you have cars to sell and people to buy them who then take out loans to buy the vehicles, then you’ll have more bonds. So if there are people who are interested in buying more commercial property, and take out loans on them, then you can bundle them into these securities.
CHIOTAKIS: So what does that mean then for the economic recovery?
SHRIVASTAVA: It means that people are buying more cars, more equipment, they are taking on debt on their credit cards, possibly to buy things to furnish their homes, so it is a sign that people are looking to buy, which is a good thing.
CHIOTAKIS: Anusha Shrivastava with Dow Jones Newswires. Thank you so much.
SHRIVASTAVA: Thank you.
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