CFC+Explained

Basic definitions

• Housing prices were going up o Why? because people were buying a lot of houses creating scarcity. • People wanted to make money off this o As a result they created MORTGAGE BACKED SECURITIES • Mortgages: The money lent in order to buy a house • Securities: Investments such as stocks and bonds which allow you to own a share or invest in something which pays you back dividends or interest. • Mortgage backed securities o People got the idea of pooling all of the mortgages together, and securitizing it • They wanted to get money from people to buy a share of their company and then pay them back dividends based on the profit the company got from mortgages (i.e. the interest) • In order to sell shares of these mortgages these companies needed mortgages and so they bought mortgages from the banks.