That's how loans worked before the mortgage backed security industry really got developed.

And you end up with a mortgage backed security.

Mortgage backed security.

So these shares each of these one million shares this is a mortgage backed security.

I think it's a distraction.

Those are essentially derivative securities that are derived from mortgage backed securities.

I have a whole video on mortgage backed securities.

And then when we go and get the property because the

So this is a form of a collateralized debt obligation.

But we have to start with the basics.

Some of them are going to pay ahead of time.

But anyway, this isn't the crux of it either.

I make are to the bank.

I only have two minutes left in this presentation, so in the next presentation I'm going to focus on what this guy can now do with the loan to turn it into a mortgage backed security.

And that's why they are called derivative instruments.

But you should watch the videos on mortgage backed securities and collateralized debt obligations, if you want to get a better understanding of exactly how the money flows go.

And the cash flow will come back to it.

You group them all together.

We don't need to invent solutions because we have them cash flow loans based in income rather than assets,

You'd have to sell that loan to someone else.

Or they might even start to buy things that aren't Treasuries.

So there's no way for him to invest in this security and to get better returns.

So let's make some very simple assumptions for ourselves.

And this guy's an investment bank instead of a commercial bank.

And the loans are just the right on these 10 payments.

For the right interest rate and for the right assumptions in my model, I'm willing to give anybody a loan, as long as I'm compensated for it enough.

But what you read about the most right now in the newspapers is mortgage backed collateralized debt obligations.

But on average this Special Purpose Entity will then be able to pay a dividend.

Real estate.

So just in kind of our everyday personal finance world, your mortgage is actually secured debt.

And the bank thinks it got a great deal.

Now to finish the job you began! It was a pleasure meeting you, but we don't want you here.

This real estate guy.

And so money came from when the owners of each of these mortgage backed securities each, let's say, paid 1,000 for the mortgage backed securities.

And I'll be willing to give this as collateral.

Do pay?

Hey, it's a pleasure. Good to meet you.

And this is not a good option for you this will kill your credit which will make it very hard for you to get a loan, any type of loan but especially a mortgage loan any time in the near future really over the next several or many years so you say, OK, I want to do the sale option

Two weeks in the future, and then I'm going to sign the check and I'll write it's for a payday loan and I'll write 625 etc. etc., then I have my little information here.

Coldwell Banker, I'm a real estate agent! Please, don't hurt me.

And that's why we say that it's a mortgage backed security.

And this is what you probably read some articles about, these hedge funds with these computer models to value their mortgage backed securities.

Leverage.

Charlie the barber.

Somebody solvent?