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.

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