kyron.reigs@guardian.co.tt
Individuals in T&T alongside institutional investors will now have more investment choices with the introduction of Home Mortgage Bank’s (HMB) Mortgage-Backed Securities (MBS).
Speaking to Guardian Media at an MBS seminar, HMB Ag CEO, Brent Mc Fee explained that the bank wanted potential clients and investors to understand the nature of an MBS.
Mc Fee said: “An MBS is an investment that is backed by a mortgage.” He continued: “So if I may break it down a bit, the investor will be investing in the cash flows that are generated from when an individual takes out a mortgage.”
Mc Fee said: “The mortgager will repay those mortgages and that cash flow generated from that repayment is what repays the investor.”
Also speaking at the event was the Manager of Fund Management & Capital Market at HMB, Osmund Prevatt. Prevatt noted that the real beauty or the value in the product is the quality of the mortgages that the bank will put together to form the investment product.
Prevatt said: “We would put together mortgages that are what we would call ‘prime mortgages’.” Prime mortgages according to Prevatt means that there are no arrears present for the mortgage and the client has the ability to service their loans with a certain level of consistency.
He said that the bank also assesses the repayment history of the mortgage before including it in the investment pool. Prevatt said: “that repayment history is what brings the cash flows to investors and that is what ensures they generate a return on investment and a rerun on principal.”
MBS investments in the US are associated with the financial crisis, where a large amount of wealth was lost because the investments were made up of sub-prime mortgages (mortgages that do not have a rigorous application process).
Prevatt noted that the failure of MBS’ in the international market did not occur in the domestic market. He said: “Our local history is banks, TTMF and other institutions that originate mortgages, they originate what we call prime mortgages.”
Prevatt continued: “The underwriting characteristics used to issue a mortgage are very stringent, in terms of, the person borrowing must qualify.” He said that the banks in T&T do a lot of due diligence in terms of issuance of mortgages and that process would significantly reduce the risks that investors would face.
Lecturer in Banking, Finance and Insurance at the UWI, Prakash Ramlakhan endorsed the idea of MBS investments. He noted: “The individual investor and to a large extent, even high net worth individuals, gravitate towards fixed deposits or mutual funds.”
He continued: “When you look at the returns that these have generated over the years, they are significantly lower than what mortgage-backed securities can offer.”
Ramlakhan noted that the stability of the MBS instruments, in term of the cash flows are quite attractive and the risk profile is quite low, relative to other instruments. He noted that investing in MBS instruments alongside stocks and other fixed income investments reduce portfolio volatility while generating an increased return.