Mortgage-Backed Securities: The Products Behind the Crisis
Most people know what a mortgage is. You borrow money to buy a house, you make monthly payments, and after 20 or 30 years you own the house free and clear. But what happens to all those mortgages after the bank gives them out? They get bundled together and sold to investors. That is a mortgage-backed security. Chapter 34 of Wilmott’s book explains how these things work, why they are tricky to price, and what makes them different from every other fixed-income product.