I do not know if this is the right place to ask this question and if it is not, you may delete this post, if this is the right place then I would like to understand MBS better
- I buy a home for 200,000 with 20,000 down payment. I get a loan for 180,000 from a local bank
- If the bank sells the loan to an investment firm, in the past, like solomon brothers. What does the local bank get? 180,000 from solomon brothers or the investment firm?
- The investment firm then takes thousands of these loans and creates Mortgage Backed Security, MBS, which they sell it to different states pension funds, as said in the movie The Big Short.
- Does MBS basically mean, here is an entity (MBS) where inside this entity is thousands of mortgages thus making it mortgage Backed security? Security because the home owner is paying interest? Is interest a security?
- The states that end up investing 5 million in MBS, what are they getting? the interest payments from the home owners?
Is my understanding accurate? I feel that, I know that it has holes and I am trying to understand better.