Until August 2007, most mortgages were originated in the primary market and were secured by real estate. These mortgages are bundled in pools and sold as mortgage backed securities (MBS) to other investors.

The bank pools mortgages from many borrowers, creates a new security that is divided in trenches based on credit rating, and sells these securities to other investors on the secondary market. When borrowers default, investors in the highest rated trench get paid first while those in the lowest trench sustain a loss. Below is a graph depicting existing securitization of debt and valuation risk.

Investors in traditional MBS are faced with a number of challenges like:

• No loan diversification risk
• Loss position has no residual collateral
• Low liquidity
• Asset pricing issues

IRESE offers a new financial structure to securitize a pool of loans or an individual loan. IRESE structure provides for securitization of each loan, diversification across many loans and market liquidity. Learn more about Real Estate Notes.