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Understanding Residential Mortgage Backed Securities
http://www.bfcsa.com.au/index.php/media-links/2-uncategorised/50-rmbs-explained
Denise Brailey's submission to Parliament August 2012: PDF
This introduction is designed to give you a working knowledge of how Australian mortgages have been used since as early as 1988, to generate cash flow and dividends (profits) for groups of investors. (Italics represent the editor's comments.)
How it all works, in a nutshell:
1) You borrow money from the bank or lender for a mortgage
2) Your lender 'pools' your loan (promise to pay), with thousands of other mortgages and calls it an Special Purpose Vehicle (SPV) or 'Trust'
3) Please note: 'Pooling' your mortgage means your lender HAS SOLD YOUR MORTGAGE to the 'Trust' (This means they have been paid in FULL and therefore are no longer a 'party of standing')
4) This 'Trust' is converted into stock and is given a CUSIP number is then made available to shareholders via the Aust Stock Exchange
5) People or companies then buy shares in 'your promise to pay' your mortgage (The Govt has bought $12b in shares)
6) Your lender gets paid to 'service' your loan, making sure you make repayments
7) Your lender also gets paid to 'manage' the 'Trust', by the shareholders
8) If you default on your mortgage payments, your lender will claim against your Mortgage Insurance, if you have it.
9) If enough home owners default on their mortgage payments, shareholders who have purchased a portion of your 'promise to pay', may sue the lender for lost dividends
10) If you default on your mortgage payments and a judgement is brought against you, the lender can sell your property and keep the money (foreclosure)
11) If you default on your mortgage payments, your lender can STILL chase you for the remainder of the mortgage YOU haven't paid
12) If the lender becomes desperate they may approach the government to bail them out, as they are 'too big to fail'
13) If a bail out is approved by regulators, TAX PAYERS MONEY is used to make up for those 'losses', with no recourse or accountablility on the banks' part.
