DEFINITION of 'Credit Loss Ratio'

The ratio of current credit-related losses to the current par value of a mortgage-backed security (MBS), or the ratio of total credit-related losses to the original par value of an MBS. Different MBSs and different sections within an MBS have different credit-risk profiles, and are therefore likely to have different credit loss ratios.

BREAKING DOWN 'Credit Loss Ratio'

Average investors do not need to significantly worry about an agency bond's credit loss ratio. Agency MBSs - for example, bonds issued by Fannie Mae or Freddie Mac, and government MBSs issued by Ginnie Mae - do not have credit risk, or are perceived by the market to not have credit risk. This is because these agencies guarantee the payment of principal and interest to the bond holder in the event of default by the underlying borrower. However, from an internal point of view, the agency MBS issuers do need to consider their credit loss ratios, because doing so will allows them to analyze whether their holdings are overexposed in certain types of riskier properties.

RELATED TERMS
  1. Guarantee Fees

    Fees charged by mortgage-backed securities (MBS) providers, such ...
  2. Current Face

    The current par value of a mortgage-backed security (MBS). Current ...
  3. Vintage

    A slang term used by mortgage-backed securities (MBS) traders ...
  4. Mortgage Excess Servicing

    The percentage of the monthly cash flow that remains after the ...
  5. Pool Factor

    The percentage of the original principal that is left to be distributed ...
  6. Agency MBS Purchase

    The purchase of mortgage-backed securities issued by government-sponsored ...
Related Articles
  1. Investing

    The ABCs of Mortgage-Backed Securities ETFs

    ETFs focused on mortgage-backed securities, or MBS, offer an opportunity to further diversify the fixed-income portion of your portfolio.
  2. Investing

    PTRIX,FMSFX,VMBSX: Profiting Off of Increased Mortgage Rates

    Learn why mutual funds that invest in mortgage-backed securities (MBS) are worth a look for investors wanting to capitalize on rising mortgage interest rates.
  3. Investing

    Asset Allocation In A Bond Portfolio

    An investor's fixed-income portfolio can easily beat the average bond fund. Learn how and why!
  4. Investing

    Top Mortgage-Backed Securities ETFs

    Investing in mortgage-backed securities has many advantages, but studying their history may make you wary.
  5. Investing

    MBB: iShares Barclays MBS Bond Fund ETF Analysis

    Explore the iShares MBS ETF and see how this fund composed of agency-issued mortgage debt compares to similar ETFs in the category.
  6. Investing

    Top 3 Mortgage Backed Securities (MBS) ETFs (MBB, MBG)

    Discover some of the best opportunities for investors seeking exposure to mortgage-backed securities through utilizing exchange-traded funds.
  7. Personal Finance

    Profit From Mortgage Debt With MBS

    Mortgage-backed securities can offer monthly income, a fixed interest rate and even government backing.
  8. Investing

    Fannie Mae and Freddie Mac, Boon Or Boom?

    These two companies are crucial to the mortgage market, but are they ticking timebombs?
  9. Investing

    What is Par Value?

    Par value is a term used for investments that means original value. It’s also called face value or nominal value.
  10. Investing

    Introduction To Asset-Backed And Mortgage-Backed Securities

    In this article, we will go through the structure, along with some examples of ABS and valuation.
RELATED FAQS
  1. Are mortgage-backed securities backed by any guarantees?

    Actually, any mortgage-backed security (MBS) guarantee depends on who issued it.To review, an MBS is a security, created ... Read Answer >>
  2. Why do MBS (mortgage-backed securities) still exist if they created so much trouble ...

    Read several different arguments in favor of allowing the trade of mortgage-backed securities, even after the financial crisis ... Read Answer >>
  3. What are the best ways to invest in mortgage-backed securities (MBS)?

    Find out how you can start investing in real estate through mortgage-backed securities. Read Answer >>
  4. What is securitization?

    Securitization is the process of taking an illiquid asset, or group of assets, and through financial engineering, transforming ... Read Answer >>
  5. What's the difference between a collateralized mortgage obligation (CMO) and a mortgage-backed ...

    Find out more about collateralized mortgage obligations and mortgage-backed securities and the difference between the two ... Read Answer >>
  6. What is the difference between the loss ratio and combined ratio?

    Learn about the loss ratio and combined ratio, what the two ratios measure and the main difference between the loss ratio ... Read Answer >>
Hot Definitions
  1. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  2. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  3. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  4. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  5. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  6. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
Trading Center