What Are Residential Mortgage-Backed Securities (RMBS) and Their Legal Definition?
Definition & Meaning
Residential mortgage-backed securities (RMBS) are a type of bond that is primarily issued in the American financial markets. These securities are created by pooling together various residential loans, including mortgages, home-equity loans, and sometimes subprime mortgages. Investors in RMBS receive cash flows derived from the payments made by homeowners on these loans. Unlike commercial mortgage-backed securities, RMBS are specifically backed by residential properties.
Legal Use & context
RMBS are commonly used in the finance and investment sectors. They play a crucial role in the mortgage market and are relevant in various legal contexts, including:
- Banking and finance law
- Securities regulation
- Real estate law
Users may encounter RMBS when dealing with investment strategies or when assessing the risks associated with mortgage lending. Legal forms related to RMBS transactions can often be managed using templates from US Legal Forms.
Real-world examples
Here are a couple of examples of abatement:
Example 1: A financial institution creates an RMBS by pooling together 1,000 residential mortgages. Investors purchase shares of this security and receive monthly payments based on the homeowners' mortgage payments.
Example 2: An investor decides to invest in RMBS to diversify their portfolio, benefiting from the steady cash flow generated by the underlying residential loans. (hypothetical example)