To find out what is in an RMBS, investors need to thoroughly assess the security, including the originator,
underwriter and borrowers--because when mortgage loans are nonperforming, the actual loss is passed on to
investors.
9
Fidelity Investments. ―Mortgage-Backed Securities Product Overview‖. Fidelity.com. August 5, 2010
10 Unless otherwise noted, we refer to these ―private-label‖ securities as non-agency or privately-issued.
11 Unlike with agency-backed securities, timely payment of principal and interest to investors in privately-issued
securities is not guaranteed.
12 RMBS not backed by the federal government generally carry a higher risk of default than RMBS backed by the
federal government, which carry only some or no risk of default.
13 A tranche is one of the classes of debt securities issued as part of a single bond or instrument. Securities often are
issued in tranches to meet different investor objectives for portfolio diversification. Each tranche is paid off
consecutively; as one bond matures, the next is paid down in a steppingstone progression.
14 Credit enhancements are techniques used to improve the credit rating of securities, generally to get investment
grade ratings from a bond rating agency and to improve the marketability of the securities to investors.