Why mortgage backed securities rates are important
Mortgage-Backed Securities (MBS) are financial instruments that are created when a large number of individual mortgages are pooled together and used as collateral to back the issuance of a security. These securities are typically sold to institutional investors, and the cash flows from the underlying mortgage payments are used to make interest and principal payments to the investors. MBS can be issued by government agencies like Fannie Mae, Freddie Mac, or Ginnie Mae, or they can be privately issued by financial institutions.
Here's a detailed explanation of mortgage-backed securities and why individual investors in MBS’d do not make as much as Blue Bay Fund partners.
Structure of Mortgage-Backed Securities
Pooling Mortgages: When a bank or financial institution makes a large number of mortgage loans to individual homeowners, they can choose to keep these loans on their balance sheet or bundle them together into a pool. The ability for a bank to pool multiple mortgages together and sell them to investors means that the investor has to be significantly capitalized, think into the 100’s of Millions in capital access.
Issuance of MBS: To raise funds and manage risk, the lender can then issue mortgage-backed securities that represent a claim on the cash flows generated by the mortgages in the pool. These securities are typically categorized into different tranches based on their risk profiles, with the riskiest tranches offering higher potential returns but also higher risk. Due to the size of an MBS the only way that individual investors are able to participate is through an ETF or a Bond Fund offered through a large national broker.
Blue Bay Fund Mortgage Investing Solution:
At Blue Bay Fund, we provide a unique opportunity for our partners to gain access to individual loans secured to real estate. Our partners can invest in fractional or slices of investments secured by mortgages collateralizing real property. But what sets us apart is that our single mortgage notes allow our partners to invest a manageable amount of capital, making it accessible to all investors. We even offer fractional slices of loans, meaning our partners don't have to buy the entire mortgage! Join us now and participate in a secure and profitable investment opportunity.
Mortgage Backed Security Interest Rates
The interest rates on MBS are influenced by various factors, but one of the most critical factors is the interest rates on the underlying mortgages. When interest rates rise, the return on existing MBS with lower interest rates becomes less attractive. This can lead to a decrease in the market value of these securities. Also, almost every MBS is created and sold with owner-occupied collateral. This means that the underlying securities for the MBS are people's primary residences, their homes. While interest rates since 2022 have been on a steady increase, over the past 10 years, MBS have generated a low single-digit return for investors.
The yield spread is the difference between the interest rate that the homeowner pays on their mortgage and the interest rate paid to investors in MBS. This spread compensates investors for taking on the risk associated with the mortgages, including credit risk, prepayment risk, and interest rate risk. The MBS cannot pay more than what they are collecting from homeowners. While some higher-risk mortgages, such as sub-prime or non-qualifying mortgages charge higher interest and therefore generate a higher yield to MBS investors, having too many of these “high-risk” mortgages exposes investors to more risks.
A larger spread can result in higher yields for MBS, which can benefit both individual and institutional investors.
Blue Bay Fund Note Investing Rates:
Are you tired of earning low-interest rates on your investments? Blue Bay Fund offers a unique opportunity to earn significantly higher returns than what you would find in the institutional MBS world. By exclusively lending to real estate investors, Blue Bay Fund is not required to meet federal requirements and stipulations, allowing for higher interest to be charged. Plus, with borrowers who are businesses offering their real estate investments as loan collateral, your investment is backed by tangible and secure assets. Join our fund partners, who often enjoy rates between 8% and 10% annually, and start earning the returns you deserve today.
Mortgage Backed Security Prepayment Risk
One of the key risks associated with MBS is prepayment risk. Homeowners can refinance their mortgages when interest rates drop, which results in the repayment of the principal to MBS investors. This can lead to reinvestment risk for investors, particularly when interest rates are lower.
Blue Bay Fund Mortgage Investing Risks:
One of the key ingredients to our fund’s mortgage investment services is that we want short-term loans. By having shorter-term loans we can quickly pivot to the current state of the market. When an investor invest in mortgage-backed securities they are investing in a long game. I am sure you have seen the volatility of the market in the past few years, and having your capital tied up for 30 years or more in an MBS gives you very little flexibility in protecting yourself against market fluctuations. When our fund partners are investing in mortgage notes they know that they have the freedom of flexibility in their investment decisions.
Mortgage Backed Security Liquidity and Size
Institutional investors, such as mutual funds and pension funds, have the advantage of size and diversification. They can invest in a broader range of MBS and have the resources to conduct thorough analysis and manage a large portfolio. This can lead to cost efficiencies and potentially higher returns. For individual investors, this is simply not possible. This is one of the main reasons it’s impossible for an individual to personally invest directly into an MBS. Instead, they are regulated to invest in Bonds or an EFT, in which case the individual investor does not have direct access and ownership of the investment.
Blue Bay Fund Fractional Mortgage Note Investing:
Investing in Blue Bay Fund is wise for those wishing to expand their investment portfolio and maximize their returns. With a minimum investment of $50,000, you can access personally selected loans secured by mortgages to real estate and fractionally invest in as little as $1,000 slices of any mortgage. This allows you to diversify your investment across multiple loans and enjoy the benefits of a well-balanced portfolio. With Blue Bay Fund, you can make your money work harder for you and achieve your financial goals.
Mortgage Backed Security Risk Tolerances
Institutional investors often have a higher risk tolerance and may be willing to invest in riskier MBS tranches, which can offer higher yields. Individual investors, on the other hand, may prioritize capital preservation and steady income, which might lead them to invest in safer but lower-yield MBS.
Blue Bay Fund Reduction in Mortgage Investing Risks:
Investing in Blue Bay Fund is an intelligent choice to minimize mortgage investing risks. The underlying collateral of Blue Bay Fund consists of real estate investment properties, not owner-occupied homes. This means that the loans offered by Blue Bay Fund I are backed by a solid asset base, providing a high degree of stability and profitability. With a significant equity cushion of typically 30-40%, we can still profit even if a loan defaults. Our risk tolerance levels are directly linked to the equity cushion available in a loan, so you can rest assured that we take your investments seriously. For instance, a loan with only a 25% equity cushion would be considered high-risk, and we would most likely offer a 10% annual return to partners choosing to invest in that loan. Choose Blue Bay Fund as a safer and more secure way to invest in real estate mortgages.
Access to Mortgage Backed Securities
Institutional investors typically have better access to the MBS market and can negotiate better terms and pricing. They may also have direct access to primary and secondary markets, which allows them to trade MBS more efficiently. For the individual investor, their ability to participate in an MBS is typically restricted to EFT also known as Exchange Traded Funds. When an investor invest in an MBS via this method they are not actually investing in the individual mortgage but the overall fund.
Blue Bay Fund Note Investing vs Mortgage Backed Securities Market:
Investing in mortgages can be challenging, especially when it comes to gaining liquidity. Luckily, Blue Bay Fund has a unique solution that will help its partners overcome this challenge. Our fund allows partners to buy a slice of a mortgage or the entire mortgage and list their purchased slice(s) for sale to other fund partners at par value. This means that our partners don't need to take a haircut on their investment and can gain liquidity quickly. With our partner eco-system, you can be sure you're investing in a secure and reliable platform. Join us now and take advantage of this unique opportunity to confidently invest in mortgages.
If you're an investor seeking secure investments in real property while retaining control over the asset without any liability or responsibility, then the Blue Bay Fund is the perfect opportunity for you. We offer both debt (mortgages) and equity (syndications & joint ventures) investments, placing them right at the fingertips of our partners. With our unique and customizable investment model, we confidently assure our partners that their investments with us are secure. Schedule a fund presentation by me, Edwin Epperson, and I’ll walk you through how Blue Bay Fund is unique and customizable for each individual partner.
