Important types of asset class include mortgage-backed securities (MBS), auto loans, credit card receivables and student loans. The MBS considered the largest is a type of asset-backed security which is an investment similar to a bond that is made up of a bundle of home loans brought from the banks that issued them. Investors in MBS receive periodic payments that are like bond coupon payments. Essentially, the bank grant mortgages to its customers and then sell them on at a discount for inclusion in an MBS. The sale is then recorded as a plus on its balance sheet and loses nothing if the homebuyer defaults on later down the road. For the investor, an MBS is as safe as the mortgage loans that back it up. The auto loans represent the second-largest sector of ABS. Based on the credit histories and rating of the individual borrower of the loans auto loans are divided into prime, nonprime, and subprime categories. Prime auto loans are for consumers with strong credit histories, nonprime auto loans are for consumers with lower than average credit rate that pay a higher interest rate, while subprime auto loans are for the lower-income consumers who have the most aggressive interest rates and probably defaults on loans. Credit card asset-backed securities are fixed income bonds that are backed by the cash flow from credit cards. When the
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