What is guaranteed by the financial institution regarding underlying mortgages?
Understand the Problem
The question is asking about the guarantees provided by a financial institution related to underlying mortgages. It requires an understanding of financial principles, specifically regarding mutual funds and mortgage-backed securities.
Answer
Financial institutions guarantee the timely payment of principal and interest on MBS.
Financial institutions can guarantee the timely payment of principal and interest on mortgage-backed securities (MBS).
Answer for screen readers
Financial institutions can guarantee the timely payment of principal and interest on mortgage-backed securities (MBS).
More Information
Mortgage-backed securities are financial instruments where the guarantees of timely payments protect investors against defaults by the underlying mortgage borrowers. This guarantee is often provided by government-sponsored entities or financial institutions.
Tips
A common mistake is assuming all mortgage-backed securities have the same guarantees, but coverage depends on the issuer.
Sources
- Ginnie Mae and the Securitization of Federally Guaranteed Mortgages - cbo.gov
- Mortgage-Backed Security (MBS) - Corporate Finance Institute - corporatefinanceinstitute.com
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