The National Home Mortgage Finance Corp. (NHMFC) or Pag-ibig has recently issued bonds that even small-time investors can buy and invest in. Last week, the Pag-ibig Fund announced that they are issuing to the public the new series of Bahay Bonds, a five-year mortgage-backed security aimed at raising P300-600 million that Pag-ibig can use to sustain its housing loan services to beneficiaries.
Pag-ibig Fund’s Bahay or Housing Bonds will pay a coupon rate of 4.80% per year. Each bonds costs only P5,000 making it easier for retail investors to participate in this bond offering.
What is a Mortgage-Backed Security (MBS)?
A mortgage-backed security or MBS is an investment asset that pools the claims on mortgage loans, essentially redirecting the interest and principal payments from a housing loan to investors. Investors of MBS, like Pag-ibig’s housing bonds, ultimately provide funding for the NHMFC’s housing loan program in the Philippines and, in return, investors secure a claim on the cash flows received from the payment of Pag-ibig loans by borrowers.
Isn’t MBS one of the culprits behind the Subprime Mortgage Problem in 2007?
Most analysts do point to securitized subprime mortgages as one of the reasons why the global economic downturn happened starting in 2007. In the United States, a lot of risky MBS proliferated because mortgages were given even to subprime lenders, or the so-called NINJAs — people who have No Income, No Jobs or Assets. These NINJAs eventually had difficulties paying their mortgages which compromised the mortgage-backed securities that had a claim on the mortgages.
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