Owner-occupied refers to a mortgage that is used to purchase a property that the borrower intends to live in. Owner-occupied mortgages are typically considered to be lower risk than investment mortgages, as the borrower has a vested interest in keeping up with the payments.
Owner-occupied mortgages are often used in securitisation because they are considered to be a relatively safe investment. This is because the borrower is more likely to make their payments if they live in the property, as they will lose their home if they default on the mortgage.
Here are some of the applications of owner-occupied mortgages in securitisation:
- Raising capital: Owner-occupied mortgages can be used to raise capital for banks and other financial institutions. This is because the securitised debt can be sold to investors, who are essentially lending money to the bank or financial institution.
- Transferring credit risk: Owner-occupied mortgages can be used to transfer credit risk to investors. This is because the investors who purchase the securities are essentially lending money to the borrower, and they are exposed to the credit risk of the borrower.
- Creating liquidity: Owner-occupied mortgages can be used to create liquidity in the market for mortgage-backed securities. This is because the securitised debt can be traded in the secondary market, which allows investors to sell their securities if they need to.
Overall, owner-occupied mortgages can be a valuable tool for securitisation. However, it is important to note that there are some risks involved, such as the risk of default by the borrower.
Here are some of the risks associated with owner-occupied mortgages in securitisation:
- Default risk: The borrower may default on the mortgage, which could lead to losses for investors.
- Market risk: The value of the securitised debt could be affected by changes in market conditions, such as interest rates.
- Liquidity risk: There may be limited liquidity in the secondary market for securitised debt, which could make it difficult for investors to sell their securities if they need to.