Credit Loss Ratio

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. Agency MBS Purchase

    The purchase of mortgage-backed securities issued by government-sponsored ...
  5. Mortgage-Backed Security (MBS)

    A type of asset-backed security that is secured by a mortgage ...
  6. Single Monthly Mortality - SMM

    In mortgage-backed securities (MBSs), this is the percentage ...
Related Articles
  1. ETFs & Mutual Funds

    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. Managing Wealth

    Asset Allocation In A Bond Portfolio

    An investor's fixed-income portfolio can easily beat the average bond fund. Learn how and why!
  3. ETFs & Mutual Funds

    3 Mutual Funds to Profit Off Increased Mortgage Rates (PTRIX, FMSFX)

    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.
  4. ETFs & Mutual Funds

    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.
  5. ETFs & Mutual Funds

    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.
  6. 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.
  7. 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.
  8. Markets

    Why Would A Stock Have No Par Value?

    A stock with no par value might trade for thousands of dollars. It just depends on what the market deems it’s worth.
  9. Personal Finance

    3 ETFs to Take Advantage of Increased Mortgage Rates (REM, VMBS)

    Obtain a comparative review and analysis of three of the top-performing ETFs that are poised to generate profits from increased mortgage interest rates.
  10. ETFs & Mutual Funds

    VBMFX: Overview of World's Largest Bond Mutual Fund

    VBMFX: Find out top positions in the world's largest bond fund, the Vanguard Total Bond Market Index Fund.
RELATED FAQS
  1. 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 >>
  2. What is securitization?

    Securitization is the process of taking an illiquid asset, or group of assets, and through financial engineering, transforming ... Read Answer >>
  3. 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 >>
  4. 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 >>
  5. Why would a stock have no par value?

    People often get confused when they read about the "par value" for a stock. One reason for this is that the term has slightly ... Read Answer >>
  6. What is the difference between par value and market value?

    Learn about the difference between the par value and market value of financial securities, including the role they play in ... Read Answer >>
Hot Definitions
  1. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  2. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  3. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  4. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
  5. Weighted Average Life - WAL

    The average number of years for which each dollar of unpaid principal on a loan or mortgage remains outstanding. Once calculated, ...
  6. Real Rate Of Return

    The annual percentage return realized on an investment, which is adjusted for changes in prices due to inflation or other ...
Trading Center