The market where mortgage loans and servicing rights are bought and sold between mortgage originators, mortgage aggregators (securitizers) and investors. The secondary mortgage market is extremely large and liquid. |||A large percentage of newly originated mortgages are sold by their originators into the secondary market, where they are packaged into mortgage-backed securities and sold to investors such as pension funds, insurance companies and hedge funds. The secondary mortgage market helps to make credit equally available to all borrowers across geographical locations.
Debts that are subordinate to the rights of other, more senior debts issued against the same collateral, or a portion of the same collateral. If a borrower defaults, second lien debts stand behind higher lien debts in terms of rights to collect proceeds from the debt's underlying collateral. |||When lenders issue loans to borrowers, they commonly require that collateral be made against the principal of the loan to ensure that the principal can be repaid in the future.In the case of a real estate mortgage, the lender effectively places a lien on the asset so that if it is sold, the lender will be first in line to receive funds. If a second mortgage is taken out on the same property, the second loan will be considered second lien debt to the first mortgage, and will be subordinate to the first in terms of return of principal. For this reason, second lien debt is usually considered riskier than higher lien debt and often comes with a higher interest rate as a result.
A standard yield calculation developed by the Securities and Exchange Commission (SEC) that allows for fairer comparisons of bond funds. It is based on the most recent 30-day period covered by the fund's filings with the SEC. The yield figure reflects the dividends and interest earned during the period, after the deduction of the fund's expenses. This is also referred to as the "standardized yield." |||The SEC yield is a good yield to use when you compare bond funds because it captures the effective rate of interest that an investor can receive in the future.
An association that represents firms of all sizes in all financial markets in the U.S. and worldwide. SIFMA is committed to enhancing the public's trust and confidence in the markets, delivering an efficient, enhanced member network of access and forward-looking services, as well as premiere educational resources for industry professionals and the investors they serve. |||SIFMA was formed through a merger of the Bond Market Association and Securities Industry Association in 2006.
A bilateral lending agreement, the note represents a contractual obligation to lend and borrow money at a specified interest rate. |||This is just a standard lending agreement. Secured notes can be modified to have additional restrictions added to them in order to increase the value and decrease the default risk.
A debt security that contains an option where the note will be converted into a predefined amount of the issuer's shares. A senior convertible note has priority over all other debt securities issued by the same organization.Since the bondholder receives two benefits not found on a normal bond issue (a call option and first priority for recourse in the event that the issuer goes bankrupt), the amount of interest offered to the bondholder will tend to be lower than on any other bond offered by the same issuer. |||The worst-case scenario would be if the issuing company initially performed well, meaning that the debt would be converted into shares, and subsequently went bankrupt. The converted shares would become worthless, but the holder of the note would no longer have any recourse.
A debt financing obligation issued by a bank or similar financial institution to a company or individual that holds legal claim to the borrower's assets above all other debt obligations. The loan is considered senior to all other claims against the borrower, which means that in the event of a bankruptcy the senior bank loan is the first to be repaid, before all other interested parties receive repayment. |||Senior bank loans are usually secured via a lien against the assets of the borrower. At the time the loan is made, there typically tend to be no other existing liens on the borrower's assets, or at least not on any of the assets being secured by the senior bank loan. Thus, if the borrower should enter a state of bankruptcy in the future, the assets used to secure the senior bank loan must be used to repay the senior bank loan before other creditors, preferred stockholders or common stockholders receive any payment.
A conversion metric to compare rates on bonds with varying characteristics. Since bonds come with all types of coupon rates and payment frequencies, it's important to be able to find some common measure to compare different types of bonds side-by-side. By using a semi-annual bond basis (SABB), the interest rate of a bond that pays other than semi-annually is converted into its semi-annual equivalent. |||When considering the purchase of a bond from a brokerage, be sure to ask for the interest rate to be quoted on a semi-annual bond basis. If they are unable to provide this computation for you and you plan on investing in bonds on a regular basis, you should consider investing in a financial calculator or computer program that can assist you in this calculation.
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