What is an RMBS, and how do they work?

Residential mortgage-backed securities (RMBS) are an under-utilised asset class for many investors, despite boasting some of the lowest default rates across the global fixed income market and offering higher yields and greater investor protections than vanilla corporate bonds of the same rating.

With around €650 billion outstanding*, RMBS is by far the largest and most liquid component of the European asset-backed securities (ABS) market, and is a key tool for banks and other lenders to finance the loans they make to homeowners in the real economy.

This video explains how banks and other lenders structure pools of mortgages into RMBS transactions, how the process works for investors, and what protections there are for bondholders.

*AFME, June 2019