Definition§
The Original Face Value refers to the total principal amount of all the underlying home loans in a mortgage-backed security (MBS) at the time it is issued. Think of it as the initial ticket price for a concert; once the show starts, the excitement might cause ticket prices to fluctuate!
In simple terms:
- Original Face Value = Total amount of all loans in MBS at issuance.
- As borrowers repay their mortgages, this amount decreases, potentially turning some investors’ frowns upside down — and not in a good way.
Original Face Value vs Current Value Comparison§
| Feature | Original Face Value | Current Value |
|---|---|---|
| Definition | Initial total principal of MBS | The outstanding balance after loan repayments |
| Time of Measurement | At issuance of the MBS | Any point in time after issuance |
| Fluctuation | Stable at issuance | Varies with loan repayments, can decrease |
| Significance | Indicators of potential yield | Actual investment value in the market |
Examples & Related Terms§
Example§
- An MBS is issued with an original face value of $100 million. Over time, as homebuyers make their mortgage payments, the outstanding balance may drop to $85 million. Investors might say, “I’m not quite in the green; where’d my $100 million go?”
Related Terms§
- Mortgage-Backed Security (MBS): A type of asset-backed security that is secured by a mortgage or collection of mortgages. Think of it as a bouncy house with a bunch of balloons; all connected but constantly shifting!
- Current Value: The remaining principal balance of loans in an MBS after some have been paid off. It’s like your bank account after a round of online shopping!
- Par Value: The face value of a bond, which is the amount paid back at maturity—very important, but not as fun at parties!
Diagrams§
Humorous Quotes§
- “Investing in MBS is like a relationship—what you see isn’t always what you get!” 🏡💔
- “Why did the investor break up with the MBS? Too many irregular payments!” 😄💰
Fun Fact§
Did you know? The term “mortgage” comes from the Old French word “mort,” meaning “dead,” and “gage,” meaning “pledge.” So it literally means a “dead pledge.” Luckily, the investment in MBS can breathe life into your portfolio (or nightmares if handled incorrectly)!
Frequently Asked Questions§
What happens to the original face value over time?§
The original face value decreases as borrowers repay their mortgages. This reduction can lead to different current values for the same MBS issued at the same time.
Why is understanding original face value important?§
Knowing the original face value helps investors gauge the potential yield of an MBS, even if the current value is as elusive as a cat during bath time!
Can original face value affect market price?§
Sure can! A higher original face value might indicate more potentially profitable mortgages, but the actual yield largely depends on repayments.
Resources for Further Study§
- Investopedia - Mortgage-Backed Securities
- “The Complete Guide to Mortgage-Backed Securities” by the Financial Services Institute
- “Anatomy of a Mortgage Backed Security” by Edward I. Altman
Test Your Knowledge on Original Face Value in MBS!§
Thank you for diving into the enchanted land of Original Face Value in Mortgage-Backed Securities! May your investments flourish like daisies in springtime! 🌼💸
