Identify the best real estate finance system and discuss why the chosen system can beat

all the available systems worldwide.

I think the best real estate finance system is Mortgage-Backed Securities System. A
mortgage-backed security (MBS) is a type of asset-backed security which is secured by a
mortgage or collection of mortgages. The mortgages are sold to a group of individuals (a
government agency or investment bank) that securitizes, or packages, the loans together into a
security that investors can buy. The mortgages of a MBS may be residential or commercial,
depending on whether it is an Agency MBS or a Non-Agency MBS; in the United States they
may be issued by structures set up by government-sponsored enterprises like Fannie Mae or
Freddie Mac, or they can be "private-label", issued by structures set up by investment banks.
The structure of the MBS may be known as "pass-through", where the interest and principal
payments from the borrower or homebuyer pass through it to the MBS holder, or it may be
more complex, made up of a pool of other MBSs.
The main characteristic of MBS is securitisation. It is the process of changing cash-
generating assets into securities. The originator creates an official entity known as ‘special
purpose vehicle’. This will issue the securities to be traded in the capital market. MBS is the
major instruments of capital market in the US. MBS issued almost exclusively with
government guarantees and backed by government insured mortgage loans. This include the
provision of payment guarantee. Majority of residential mortgage loans in the US use MBS.
Mortgage Backed Securities System is a system that can contribute to the financial
crisis. The securitization of subprime mortgages into mortgage-backed securities (MBS) and
collateralized debt obligations (CDOs) was a major contributing factor in the subprime
mortgage crisis. Tranches of these securities were then sold to unsuspecting investors, who
were not aware of the risk associated with them.
MBS has changed the Housing Industry. The invention of mortgage-backed securities
completely revolutionized the housing, banking and mortgage businesses. At first, mortgage-
backed securities allowed more people to buy homes. During the real estate boom, many banks
and mortgage companies made loans with no money down. That allowed people to get into
mortgages they couldn't afford. The lenders didn't care. They knew they could sell the loans,
and not pay the consequences when and if the borrowers defaulted. That created an asset
bubble. It burst in 2006 with the subprime mortgage crisis. Since so many investors, pension
funds and financial institutions owned mortgage-backed securities; everyone took losses.
That's what created the 2008 financial crisis.
Identify the best real estate finance system and discuss why the chosen system can beat
all the available systems worldwide.
Mortgage-backed securities are investments that are secured by mortgages. They’re a
type of asset-backed security. A security is an investment that is traded on a secondary market.
It allows investors to benefit from the mortgage business without ever having to buy or sell an
actual home loan. Typical buyers of these securities include institutional, corporate or
individual investors. When you invest in an MBS, you are buying the rights to receive the value
of a bundle of mortgages. That includes the monthly payments and the repayment of the
principal. Since it is a security, you can buy just a part of the mortgage. You receive an
equivalent portion of the payments. An MBS is a derivative because it derives its value from
the underlying asset.
How MBS work? First, a bank or mortgage company makes a home loan. The bank
then sells that loan to an investment bank. It uses the money received from the investment bank
to make new loans. The investment bank adds the loan to a bundle of mortgages with similar
interest rates. It puts the bundle in a special company designed for that purpose. It's called a
Special Purpose Vehicle or Special Investment Vehicle. That keeps the mortgage-backed
securities separate from the bank's other services. The SPV markets the mortgage-backed
securities. The mortgages stay in the SPV. Government agencies are also involved in most
mortgage-backed securities. These are Fannie Mae, Freddie Mac, and Ginnie Mae. Fannie Mae
and Freddie Mac both buy and sell MBS. The federal government guarantees the payments.
Those who bought an MBS knew they wouldn't lose their investment. Ginnie Mae also
guarantees that investors would receive their payments.