Mortgage-backed securities I | Finance & Capital Markets | Khan Academy
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- เผยแพร่เมื่อ 29 ส.ค. 2007
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Part I of the introduction to mortgage-backed securities. Created by Sal Khan.
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He knew... He KNEW it was coming...
He “knew” how mortgage backed securities worked. That’s it.
This was posted the year of the collapse
@@Brittjones 1 year before the collapse. Roughly speaking
@@mdogzino no nerd shii but the bubble burst of 2008 was showing signs of bursting in May of 2007. Financiers all knew it was coming but wanted to hold off as much as they could.
@@dukensonguerrier5369 this is the part where they were still laughing at the big short.
This 10 year old video and part II helped me nail my job interview this morning. I got the offer! Thanks Khan Academy!
Hey, may I know for what position was it? I have one interview coming up and maybe you could shed more life at the hiring process. Thanks.
Yo congratulations!!
wow
Trying to do the same thing bruv.
SAAAME
"Pretty Significant" August 2007. Sounds about right.
the timing of the upload is phenomenal
Who's here because of the movie The Big Short?
me me me
Lol
I stop the movie cause didnt understand it
Me
lol yeah 5 mins into the movie and I'm here. It's like reading a book in French and you have to pull out the dictionary every two sentences.
Omg I am learning about the financialisation of housing and have no background in economics. I was having trouble getting my head around how securitisation works from the readings and what it meant that shareholders are now more significant. This video explained it in a very simple way and has helped me to understand the concept more than anything else. Thank you so much!
I think I need to watch this series before watching 'The Big Short' because so far, it looks like I won't understand ANYTHING in that film.
+MagnumDB lol, that's why im here too :))
+MagnumDB I watched the film, understood nothing and have now watched several in this series and its all making a lot more sense. I think i may watch the film again as i'll appreciate it a lot more.
+Jack Cooper im 20 minutes into the movie but needed to stop and look this up
+MagnumDB That's d reason I am here too bro. :p
+MagnumDB I am watching that movie right now and it is the reason I have come to this video :D
lol, just before crisis
I love it. Eight years ago Sal Khan taught me more than my O-Chem tutors could about valence bond theory & hybrid atomic orbitals. Now I'm learning about mortgage backed securities from him also!
This guy covers every subject. He is genius
Guys I thought this was a recent video. It's been done 10 yrs ago 😂😂😂 Great video, by the way!
Lovely video, I now understand, have ben struggling with my studies in finance lecturers teaching s so boring. that's why I got on youtube. weldone khan academy
"...and says hey, investment bank, why don't you give me a billion dollars....."....PRICELESS....
3:33 "And you have a hat" aha did anyone else think this was really random?
Just started watching The Big Short from PB. Quality is watchable. This subject of Mortgage-Back Securities immediately came up (or Private labelled MBS as they also call it in the movie). I knew I had to watch these from Khan to understand it. Wolf of Wall street was enjoyable to watch but it would have been better if I understood what was going on financially. Not making the same mistake with this movie!
thank you for this video. this is really a great help for my research
To those wondering why bank 1 would sell the 1B$ in loans for that same amount, as opposed to more in order to cover the 1B$ debts obligations plus interest it has coming to it, much less without getting a "profit" on top of that, understand that in the real world, bank 1 never actually had a billion dollars to loan. Because of 1/10 fractional reserve requirements, it only really needed 1/10 of 1B$ in order to make the 1B$ in loans, which is an extra 9/10ths of 1B$ it would then have magically added to it's deposits right out of thin air. But these are not "profits," because it isn't the bank's money, but rather, the depositors' until they finally pay them back. Upon that time, the bank will have made 9/10ths of 1B$ on that initial 1/10ths of 1B$, which doesn't even include interest (can we say, CHAH-CHING!). But that takes time, and the bank needs more money to loan right _now,_ in order to continue making even more money in the meantime, so what appears to be taking a loss in the short run really isn't. To the contrary, it has made _gains,_ and no, not as much as would have been otherwise (because they lose the interest they otherwise would have received), but they still made massive profits in right _now,_ in one fail swoop (in very short order to say the least), whereas bank 2 has all that money coming to it over time, who is able to do so because it already has plenty of cash on hand to do it's own business, and isn't in any need of replacement deposits at present. If bank 1 had to charge _MORE_ than 1B$ in order to sell the loans, then it would make less sense for bank 2 to buy them when it can just make out it's own 1B$ n loans on it's own. But of course, investment banks aren't really in the mortgage business. But presented with an opportunity to buy up an entire package, might do so. Granted, if they knew now what they knew then about just how sub-prime these mortgages really were, would probably not have done so. (Of course, when the govt is requiring people to make them, as was the case in the debacle that came to a head in 2008, it's kinda inevitable.) Cheers, all.
That's a nice job of explaining MBS. I also like the way you made the presentation.
Many thanks for explaining the 2007-8 financial crisis
here because our prof let us watched the big short movie and i dont even understand anything about it now after wathcing this it kinda help me understand little by little thank you!
thanks for making the big short film a whole lot easier to watch
really loved this one,great thing bro
Apart from the reason given in the video for the commercial bank to sell the (loan portfolio) if i may say so, to the Investment bank, could it also be that they perhaps wanted to safeguard against any sort of credit risk, such as in case the customers failed to pay the EMIs and defaulted?
Im not sure if i'm right, but if you got confused about the first part about paying the bank a total of 2 million after 10 years ( 100k x 9 + 1.1m). Don't forget that the bank gave you 1 million to begin with. The bank will earn 1 million dollars and you will be paying a total of 1 million at the end. Here's an example, the toy gun on the shelf at the toy store is worth 10 cookies. I have no cookies, so my friend (the bank) tells me that he can lend me 10 cookies, but for 9 days i have to pay him back an interest of 1 cookie and on the 10th i have to pay back an interest of 1 cookie plus the original 10 cookies that he lends you. You may think this sounds unfair because I have to give a total of 20 cookies at the end. But dont forget your friend lent you 10 cookies to begin with plus 10 extra days to gather 10 more cookies. At the end you are paying the full amount but the bank allows you to pay for it over a period of time.
Then who in there right mind under this sun would do that?
So what, people took a loan, paid it off slowly for 30 years and then they had to come up with a bonus million dollars to give back to bank?
In real life, people pay the interest plus a portion of the principal every month
you explain it way better than my teachers.thank you
thanks very much for this.
Mortgage Backed Securities are not sold by investment banks. They are sold by the government sponsored enterprises (GSEs), Fannie Mae, Freddie Mac, and Ginnie Mae. GSEs purchase mortgages from lending banks.
Investment banks also purchase mortgages, and (indirectly) sell securities backed by them (through SPVs), but these are called collateralized debt obligations (CDOs). The SPVs either buy the mortgages or sell mortgage default insurance (CDS). Either way, investors purchase CDOs from SPVs.
Banks do not lend other peoples money, they create the money at the point the loan is issued and it is simultaneously added as an Asset (The Loan) and a Liability (The Bank Deposit Cash created out of thin air), this then balances the Banks Balance Sheet. They don't need money to lend money - Banks create 97% of our money when they make loans. That's why we had a credit crunch - more accurately should have been called a Money crunch.
+conradvfr750 So let me understand this. Why would the banks lend money to prospective home owners when 1) they lose money by selling the loans to investment banks for less than the original value due to guarantee fees and 2) they lose even more by paying mortgage brokers a finder's fee. Sure they would have hard cash to invest with given to them by the investment banks for the loans but it seems like a crappy deal altogether, no?
It was a very good insightful video
Great Account.. Better than attending classe
The major reason the bank sells the loan to the investment bank is so that what was receivables before for the bank is now liquid cash. So now, they can lend even more with the cash they receive. (basically liquidation of illiquid assets)...Not just for the fees!
they aren't getting any more liquidity (cash) than what they had previously though. They had a billion dollars, turned it into 'debt', then got another billion after transferring all the loans to someone else therefore replenishing their liquidity to the exact same level as before. I still don't see what they got out of this
I heard what he was saying and was like wait... when was this published? 2007? Sweet jesus....
Khan Academy glossed over the fact that banks charge you fees for filling out paper work (they have to look at how good you are at paying back loans, how good the property is if you don't pay the loan back, etc). I don't know how it works for residential properties, but for commercial properties, the fees are often tacked on to the loan.
Wow this was right before the global financial crisis.
This was expertly timed
Still watching in 2022, thanks for this!
There are not spanish subtitles, okay, this is my moment to learn english xD
You're quiet the fine artist ;-)
thank you so much,
it's a good thing you try to educate your american fellows
I'm from the future and I suggest you buy a bunch of these things called Bitcoin.
@@spondoolie6450 by that time Bitcoin was already there.
Khan covers this in the previous two videos. It would be best if you were to watch it through his site as opposed to youtube. The site leads you through the videos nicely
YOU ARE THE BEST !
Thank you
Great video. Only thing that is incorrect is that banks don't loan deposits. Otherwise very helpful!
I don't know about it but makes sense.
Cause I believe they buy U.S debt securities and sell mortgage loans.
In case of liquidity crisis they sell the securities and keep the FDIC regulations in check.
Buy some gold and profit on the price increase on gold sell it back when price is high keep 3 times the Share value of the company in cash in case of a mass panic they can withdraw 80% of deposits for depositors and be good with the fdic and get loans from the federal reserve.
Does anyone realise than Sal Khan made this BEFORE the GFC of '08?
The video is 14 years ago😲
Just woww🐼
This was a prophecy we all ignored.
It's not .1 mil, 100k per year times 10 it's 1 M, 10% interest per yr, 2M for the loan interests+principal.
Jay I was confused wen he said .1
So im dumb at this but if the repayment totals 2 m on a 1 m dollar loan then isn’t that a 100% interest loan?
@@redwingdetroit9671 Not really, the reason it seems like a 100% interest loan is because it lasts 10 years and 10*10% is 100% if it was 10% on a 30 year loan then in total you would have payed 4 million.
The reason it's described as only 10% is because that's how much you're paying each year. So that's one of the most important details to someone who wants a loan (how much they'll be paying each year)
anyone know why we cant just pay the developer of the property directly (in installments)? why go to the middleman (the bank), obtain a loan, pay the developer, then pay the bank the interest?
Very instructive
You inspire me!
If this truly came out in August 2007 that is really impressive timing....by the end of the year 2 million people would be unemployed
wow well done
Can you please put this video back up?
Nice!!!!
@ThyHolyHandgrenade i think all loans require a prinicipal repayment but i think what sal is supposing in this example is that the borrower is only paying the interest during the course of the ten years and the prinicipal repayment at the end (just to make the maths a bit easier)
well all i have to say is your amazing =) at this
Now, does the first bank gets just the principal or principal plus interest amount from the second bank ?
Way to go Sal
That's me!! I still exist!!
Khan sounds genuinely excited to talk about financial markets :D You can feel the latent hedge fund analyst in his voice :DD
No
What an underrated comment
ماذا تعني MBS
mbs mortgage backed securities
تعني اوراق مدعومه بالرهن العقاري
حيث هي اختصارات الاحرف
(M)
mortgage
(B)
backed
(S)
securities
Excellent
@ThyHolyHandgrenade What he means is that you don't have to pay off a part of the loan principal alongside your interest payment every month. You just pay it in bulk at the end. Normally you pay the 10% interest plus some percentage of your loan. In which case at the end of your term, you don't have any principal to pay.
What did you use for your screen capture? which software? thanks!
This was expertly timed 😂😂
This video did not load for me as well
@pauli3100 i noticed that too. would be good to get some video notes up there to indicate this mistake
@dandreoli1973 He's oversimplifying for the less financial-market-savvy students. There's a video where he talks about this in slightly greater detail.
See "Housing Price Conundrum (part 3)"
When the fellas who went short on the housing market went to sell their positions (as dramatized in the film the big short) why were the returns negotiable in terms of what the buyers were willing to pay? I thought the holder of the short (put option?) Was guaranteed a set price at time of sale non negotiable?
Can you explain how the fees work? Like does bank # 1 sell the $1B loan bundle for more than $1B? Just making sure I understand this correctly. I understand the concept that bank #1 would not have sold the loans without making money on it, but I am just not clear on HOW they make this money.
“You…you have a hat…” OMG how did he know?!
Watching this just so i can understand The Big Short
Me too, I've watched the big short at least 5 times already lol
Of course I'm extremely wealthy, haven't you seen my hat?
Aquisitions by default are more common in US, a rare thing in Europe.
So how does the bank benefit if it has to sell its mortgages to the investment bank at a price equal to the total principle the homebuyers were supposed to pay for?
I think why the mortgagor bank doesn't do the whole process rather than pass it to the investment bank is because it wants to make the mortgage under a separate entity that has its own credit rating, so the rating will be higher than the mortgagor rating itself. Am I right?
thanks
Ah The Happenings In Our Finance World.
Is this before or after taxes :P
FYI, MBA is not only about Finance, it's a combination of marketing, management, and finance :)
@ZzzVvvYyy:
It might not be the best of comedy, but I lol'd all the same. Thanks for that. xD
Can you tell us how to identify companies investing in mbs?
Pension fund
You KNEW...you knew I had a hat @3:34
@yowmer WTH?! so with most of these housing loans the total sum you end up paying is like what....TWICE the principal? (100k X 10 + 1M = 2M?)
sounds more like a balloon land contract than a loan lol.
wait do you mean that you have to pay the one million on interest alone and then at year 10 you pay the initial principal as well?
you're paying the bank 1 million for the ability to wait 10 years before you have to pay back. You borrow 1 million for 10 years on 10 percent interest per year.
insane beyond reason lmfao
CFA level 1 in Desember 2018?
Employers what to employee people who are focused in particular fields. Only do a MBA if it is required by the employer.
ACCA is a brilliant course. I wish I could do a CFA but its tooooo hard. The pass rate for CFA worldwide is about 40 percent.
If I had a CFA I could make 100k a year.
How do you pay back that million dollars at year 10?
What software does he use?
Hi Sal. What happens if someone defaults on the loan? Does the house go to the bank? Or to the Investment bank?
Why are you the way that you are.
Bank - either through power of sale or foreclosure
The home goes to the servicer of the mortgage, incorrect to state that its the bank automatically. He doesn't go into this stuff b/c getting into the weeds of these fixed income securities are crazy. I work with these
oh 2007, Hello Middle School !
nice voice
@speculatorMan yea thats what i thought too...can someone clarify?
The only way this could ever make sense to me would be if Bank1 sold the loans for more than 1B$ to Bank2, in which case Bank1 makes some money fast and Bank2 over time makes a little less than 100m$. Is this the case?
I mean Bank1 lends out 1B and takes 10% interest (100m)
Bank2 buys the loans for 1B + 50m
Bank1 makes 50$ right away
Bank2 earns its' 50$ over time from the debtor
Help, please!
Otherwise known as Primary market and Secondary market.
just got an internship at mortgage banking
Is this like the volatility on the 2011 movie Margin Call ?
Bender Bending Rodriguez yes. Although there’s was more general securities than movies like The Big Short.
@@ElRojasP Watched that movie, pretty good.
I thought there was just a thousand ads in this video
I am confused between this and that bank!
I like teenage-backed securities more than mortgage backed ones. Check out "Genius Trust."
@TheFlamebarrier 16:15