How to Buy Pooled Mortgages

Investing in securities is one way to plan for the future. Your financial adviser can direct you to the type that is best for your situation. Your choices will include regular corporate stocks, government bonds, real estate investment trusts and pooled mortgages, also known as mortgage-backed securities. When a group of mortgages are pooled and purchased by the government, a business or a financial institution, they may be sold as securities to investors such as yourself. Profits are earned from the principal and interest of the mortgage payments that homeowners make each month.

Instructions

1. Contact your stockbroker or an investment firm that buys pools of mortgages. Most mortgage-backed securities are purchased from loan originators by large companies or banks who then sell individual securities from the pool of loans to financial clients.

2. Specify the type of pooled mortgage security that you want to buy. Ask for loans with certain terms (such as 15 or 30 years), balances, interest rates, ages and geographical locations. Look at the mortgages in the pool that is used for the securities to determine the risk and rate of return.

3. Consider purchasing pass-through pooled mortgages, which are issued by a company that collects the monthly payments from borrowers and divides it among those who own shares in the loan based on the proportion of their securities.

4. Buy securities in collateralized mortgage obligations, also known as real estate mortgage investment conduits. These types of loans are pass-through securities that are pooled again into bonds for investment. They can be a mix of mortgages that have various terms, returns and borrower credit ratings.

5. Spend between $1,000 to $25,000 for each security or bond that you buy. Although some pooled mortgage products are considered to be safe investments, buy them with money that you have saved, not borrowed, and can afford to lose.

Tips & Warnings

• If you buy into a mortgage pool with loans that carry high interest rates, you can receive a large return on your investment. However, if these loans are refinanced when the rates drop, your initial investment may be repaid and you will no longer collect your principal and interest portion in monthly installments. Collateralized mortgage obligations guard against prepayments.

References

• Best Growth Stock: Types of Securities and Their Purposes
• Freddie Mac: Pass-Through and Collateralized Mortgage Securities
• Fannie Mae: Basics of Fannie Mae MBS
• AllStarStocks: Make More With Mortgage-Backed Securities
• RiskGlossary: Mortgage-Backed Security
• Fidelity: What are Mortgage-Backed Securities?