Net Interest Margin Securities - NIMS

DEFINITION of 'Net Interest Margin Securities - NIMS'

A security that allows holders to access excess cash flows from securitized mortgage loan pools. In a typical net interest margin securities (NIMS) transaction, excess cash flows from the securitized mortgage loan pools are transferred to a trust account. Investors in NIMS receive interest payments from this trust account.

BREAKING DOWN 'Net Interest Margin Securities - NIMS'

The creation of NIMS is facilitated by the fact that numerous securitized mortgage pools contain subprime mortgages with interest rates that are much higher than the typical rates offered to mortgage-backed security (MBS) investors. The bigger the difference in these interest rates, the more the excess cash flows generated by the MBS and consequently the higher the value of the NIMS. Of course, the value of the NIMS can decline rapidly if there is a significant increase in the default rate of the mortgages held in the MBS, and a subsequent decrease in excess cash flows.

RELATED TERMS
  1. Mortgage Excess Servicing

    The percentage of the monthly cash flow that remains after the ...
  2. Securitize

    A pooled group of financial assets that together create a new ...
  3. Mortgage-Backed Security (MBS)

    A type of asset-backed security that is secured by a mortgage ...
  4. Principal Only Strips - PO

    A type of fixed-income security where the holder is only entitled ...
  5. Guarantee Fees

    Fees charged by mortgage-backed securities (MBS) providers, such ...
  6. Secondary Mortgage Market

    The market where mortgage loans and servicing rights are bought ...
Related Articles
  1. Insurance

    Behind the Scenes of Your Mortgage

    Four major players slice and dice your mortgage in the secondary market.
  2. Insurance

    Find Security In Covered Bonds

    Find out about a safe investing alternative that could have prevented the subprime meltdown.
  3. Investing Basics

    How Banks Set Interest Rates On Your Loans

    On the face of it, figuring out how a bank makes money is a pretty straightforward affair. A bank earns a spread on the money it lends out from the money it takes in as a deposit. The net interest ...
  4. Stock Analysis

    Is it Time to Dump Bank Stocks?

    Since the second half of 2012, bank stocks have really found their footing. Shares of Citigroup (NYSE: C) and Bank of America (NYSE: BAC) have rallied more than 50% in the past six months, adding ...
  5. Stock Analysis

    Short Sellers Are Loading up on Bank Stocks, Should You Follow Their Lead?

    Since the second half of 2012, bank stocks have really found their footing. Shares of Citigroup (NYSE: C) and Bank of America (NYSE: BAC) have rallied more than 50% in the past six months, adding ...
  6. Mutual Funds & ETFs

    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. Credit & Loans

    Credit Crisis: Foundations

    By Brian PerryAt the dawn of the new millennium, global financial markets entered a period that came to be defined by low interest rates and below-average volatility. This period, sometimes referred ...
  8. Home & Auto

    Shopping for a mortgage in 2016? Use this tool first.

    As home-buying technology has progressed, the process of finding the best mortgages rates for 2016 can all be done online.
  9. Investing Basics

    CMO vs CDO: Same Outside, Different Inside

    The concept of collateralizing and structured financing predates the market for collateralized mortgage obligations and collateralized debt obligations.
  10. Options & Futures

    Conquering The Terms Of Your Mortgage

    Buyers with big down payments should get the best mortgage terms. Unfortunately, the equation isn't that simple.
RELATED FAQS
  1. What is securitization?

    Securitization is the process of taking an illiquid asset, or group of assets, and through financial engineering, transforming ... Read Answer >>
  2. What do mortgage lenders use the securitization food chain?

    Read about the origins of Chris Ferguson's securitization food chain, and find out how mortgage lenders could package and ... Read Answer >>
  3. What are some historical examples of debt securitization?

    Find out how debt securitization started, how it works and why the government facilitated the mortgage-backed security market ... Read Answer >>
  4. Who bears the risk of bad debts in securitization?

    Bad debts arise when borrowers default on their loans. This is one of the primary risks associated with securitized assets, ... Read Answer >>
  5. What are some of the arguments in favor of debt securitization?

    Find out how debt securitization creates benefits for loan originators, borrowers, investors and capital markets by diversifying ... Read Answer >>
  6. How does securitization increase liquidity?

    Learn how securitization increases affects working capital and liquidity, and why it matters for a company seeking to increase ... Read Answer >>
Hot Definitions
  1. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  2. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  3. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  4. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  5. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  6. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
Trading Center