Second mortgage is a loan that is secured by a property that already has a first mortgage.
- In the context of securitisation, second mortgages are typically considered to be higher risk than first mortgages.
This is because second mortgages have a lower priority than first mortgages, which means that they are less likely to be repaid in full in the event of a default.
Second mortgages are also typically less liquid than first mortgages, which means that they can be more difficult to sell.
Here are some applications of second mortgage in securitisation:
- To increase the yield: Second mortgages can be used by securitisation issuers to increase the yield of their securities. This is because second mortgages typically offer a higher interest rate than first mortgages.
- To diversify the risk: Second mortgages can be used by securitisation issuers to diversify the risk of their securities. This is because second mortgages are typically less correlated with first mortgages, which means that they are less likely to lose value at the same time.
- To attract investors: Second mortgages can be used by securitisation issuers to attract investors. This is because some investors are willing to accept the higher risk of second mortgages in exchange for the higher yield.