Common Types of Mortgage-Backed Securities

Established by Dirk Coetzer and Gregory Upton in 2008, Icon Capital Sarl is based in Capellen, Luxembourg. A securitization fund, Icon Capital Sarl manages a range of securitization assets, including mortgage-backed securities.

Comprised of similar, pooled mortgage loans, mortgage-backed securities are most often based on residential property. Divided into governmental, quasi-governmental, or private entity categories, depending on the company that originated the loan, the securities can fall into a number of structure types.

Pass-through participation certificates, one of the most common types of mortgage-backed securities, are usually issued or guaranteed by a lender such as Freddie Mac or Fannie Mae. The security’s issuer collects the monthly mortgage payments from the homeowners and passes payments on to the investors, delivering a secure, although variable, cash flow that matures in five, seven, 15, or 30 years. Another type, collateralized mortgage obligations, draws from large home mortgage pools. Because these securities use a complicated deal structure, the amount paid to investors varies depending on interest rates and other market risks.

An Introduction to Securitization

A prominent European securitization fund with more than seven years of continuous operation in Luxembourg, Icon Capital Sarl endeavors to deliver reliable, safe securitization services to its clients. Securitization funds such as Icon Capital Sarl create financial instruments, known as “securities,” by combining a number of other financial assets. Once securitization funds create a new asset, they establish tiers and market them to a wide variety of investors.

The classic example of securitization is the mortgage-backed security (MBS), which combines hundreds, or even thousands, of mortgages into a larger pool. From that point, the issuer of the security can separate the pool based on default risk and sell the smaller pieces to investors. Using the MBS and other pooled-asset securities, investors gain access to a type of bond without the large investment typically required for entry into a large pool. As such, financial professionals often point to the capacity of securitization to create liquidity in markets.